[Answered]Discuss the objectives of Ujjwal DISCOM Assurance Yojana (UDAY). Critically examine its success and failures.

Demand of the question

Introduction. Contextual introduction.

Body. Objectives, achievements and failure of UDAY.

Conclusion. Way forward.

 Ujwal DISCOM Assurance Yojana (UDAY) is a financial restructuring and efficiency enhancing program. It aims to reduce the debt burden of the state owned electricity distribution companies (DISCOMs) started. Though the main component of UDAY is debt management, other measures like raising operational efficiency are also proposed to permanently settle the debt scenario of DISCOMs.

Objectives of UDAY:

  1. Improving operational efficiencies of DISCOM.
  2. Reduction of cost of power.
  3. Reduction in interest cost of DISCOMs.
  4. Enforcing financial discipline on DISCOMs through alignment with State finances.
  5. Scheme aims at financial turnaround and revival of Power Distribution companies(DISCOMs) and ensures a sustainable permanent solution.

Achievements of UDAY:

  1. It took off well, with a large number of states joining the scheme. Several states took over the debt of their utilities, improving their liquidity situation. Evidence also suggests an improvement in the power supply situation.
  2. Government’s UDAY scheme has helped debt-laden discoms of 24 states to reduce losses to Rs 369 billion in 2018 from Rs 515.9 billion in the previous financial year.
  3. The participating states have achieved an improvement of 1% in Aggregate Technical & Commercial (AT&C or distribution

Challenges in UDAY:

  1. High Aggregate Technical & Commercial (AT&C or distribution) losses: AT&C losses remain high, with some states indicating losses of over 40%, far from the 15% target. So far, only 7 states including, Tamil Nadu, Telangana, Kerala, Gujarat, Andhra Pradesh, Goa and Himachal Pradesh, have registered losses below 15% while the rest of the states have failed to achieve even this.
  2. Increased gap: The scheme also requires DISCOMs to bring down the gap between the average cost of supply and average revenue realised to zero. Instead of reducing this gap, a number of states like Punjab, Jammu and Kashmir, Manipur and Goa have seen this gap widened in the last few years.
  3. Increasing cost: The prevailing maladies in the distribution system rising share of renewable energy (RE) is increasing the average cost of supply, as it is displacing consumption of low-cost coal.
  4. Less profit than loss: The interest received is lower by at least 4-6% indicating that there is a loss of income. For every ₹1 lakh crore of UDAY bonds issued involves a loss of up to ₹6,000 crore for banks and FIs that have lent money to them.
  5. State burden: By also mandating that State governments have to progressively take over the losses of their SEBs, the Centre has put the onus on the States to deal with the problem. The share of discom losses that states have to bear will increase from 5% in 2016-17 to 10% this fiscal and eventually to 50% by 2019-20.
  6. Debt non-payment: Around 21,000 MW of private coal-fired generation capacity is under stress due to the non-payment of debts by discoms. Discoms of states like Tamil Nadu, Madhya Pradesh, and Maharashtra have defaulted on their Power Purchase Agreements (PPA) obligations. These states are forcing the centre to consider options like giving more powers to regulators to penalise discoms.

Way forward:

  1. Discom business needs to be fundamentally restructured. Governance needs to be improved with greater resilience to political influence.
  2. Robust mechanisms need to be put in place to ensure tariff rationalisation and follow-through on subsequent increases.
  3. Market-friendly electricity reforms need to be introduced and enforced. This includes expanding the role of short-term markets, as well as strict enforcement of PPAs to assure investors and developers of the legal sanctity of contracts signed with discoms.
  4. Streamlining the open access process, with the fair application of additional surcharges will boost the demand for renewable energy from the commercial and industrial sectors.
  5. Discoms will have to be pushed harder to invest in technical solutions and infrastructure upgrade such as feeder separation, installing smart meters and undertaking detailed data collection and analysis.
  6. Strict Actions to curb Electricity theft and other actions those lead to Losses to DISCOMs. Setting up dedicated police stations to catch electricity thieves is needed.
  7. Integrating UDAY scheme with Make in India and Startup India to ensure overall Development.

While the Centre plans to come up with Ujjwal DISCOM Assurance Yojana (UDAY) 2.0 it is important to learn from previous failures and prevent it. Without removing the core issues UDAY 2.0 can’t achieve much of its objectives. Need of the hour is to examine the causes of failures of UDAY scheme.

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