Ujwal Discom Assurance Yojana (UDAY)Scheme UPSC NOTES

The UDAY Scheme (Ujwal DISCOM Assurance Yojana) was launched to bring about a transformation in the state of the DISCOMs in the country, which were afflicted by high debt and losses resulting from low levels of efficiency. The focus was on two sets of parameters: financial and operational. On the financial side, the thrust was to bring about a turnaround by restructuring the debt on their books. On the operational side, the objective was to make them more robust in terms of reduction in transmission losses, better realization, better metering, supply etc.

 With almost one and a half years being traversed, the progress of the Scheme can be evaluated on different yardsticks as was included in the MoU signed by states. While the biggest sop was debt restructuring, the DISCOMs and states had to bring about an equivalent improvement in various parameters. The progress so far is analyzed here.

 Broadly speaking the restructuring was as follows:

 · States were to take over 75% of the DISCOM debt as on Sept 30, 2015 in two tranches, 50% in FY 2015-16 and 25% in FY 2016-17.

 · These states were to issue non-SLR including SDL bonds, to take over debt and transfer the proceeds to DISCOMs in a mix of grant, loan, equity.

 · The maturity period of these UDAY bonds would be for 10-15 years.

 · The moratorium period would be up to 5 years.

 · The rate payable on these bonds would be GSec rate plus 0.5% spread plus 0.25% spread for non-SLR.

 · These borrowings would not to be included for calculating fiscal deficit of the State.

 The balance 25% of debt would remain with the DISCOMs in the following manner:

 · Issued as State-backed DISCOM bonds

 · Re-priced by Banks/FIs at interest rate not more than bank base rate + 0.10%

 · States were to take over future losses of DISCOMs as per trajectory in a graded manner.

 [0% of loss of 14-15 & 15-16; 5% of 16-17; 10% of 17-18; 25% of 1819 & 50% of 2019-20]

 · Balance losses to be financed through State bonds or DISCOM bonds backed by State Government guarantee, to the extent of loss trajectory finalized with Ministry of Power.

 · Jharkhand and J&K given special dispensation for takeover of outstanding CPSU dues.

 Monitoring of UDAY

 Several goal posts were put in place for monitoring the progress made in this area. These were for the financial and operational targets. For this purpose the financial indicators considered are: · Cumulative amount of Bonds issued for takeover of DISCOM liabilities · AT&C loss (Target: 15% by 2019)

 · ACS-ARR Gap (Target: elimination by FY19)

 · Tariff Revision

 On the operational side, the Indicators are:

 · Feeder Metering (Rural/ Urban) indicating metering status of feeders in rural / urban areas (target June 2016) · Distribution Transformer Metering (Rural/ Urban) to capture the status of Distribution Transformers in rural / urban areas (Target: June 2017)

 · Electricity Access to Un-connected Households

 · Smart Metering to monitor status of consumers with load between 200 kwh to 500 kwh and more than 500 kwh.

 (Target: Dec 2017 for above 500 and Dec 2019 for 200-500 kwh) · Rural Feeder Audit

 · Feeder Segregation of agricultural from total targeted feeders · UJALA for distribution of LEDs vis- à-vis the total targets Progress so far

 22 states have joined this programme, of which 16 have provided complete information of the progress based on the template provided by the Ministry. The 6 states that have not provided data so far are UP, HP, Telengana, Sikkim, Assam and Tamil Nadu. The table below provides information on the issuances of UDAY bonds and the total targeted.

 Nearly 75% of the total amount that had to be raised through UDAY bonds has been achieved so far as

 presented in the table alongside. The larger issuers not included in the table on account of nonsubmission of data are UP, Telengana and Tamil Nadu which have large volumes of debt on their books that have been taken over.

The utility of UDAY:

  • Unsustainable borrowings should be curbed to put a stop on ever-increasing loss. Under Uday, the future losses can be permitted to finance only when a discom bond is guaranteed by the State Government, thus ensuring that the discom applies a profitable discretion
  • With elements like the guided intervention of the State governments and the graded manner in which it needs to be taken up, the scheme assumes an all-season ongoing approach and not a one-time settlement effort.
  • Certain conditions put across by Uday involves:
  • Loss reduction needs to be aided by circle-wise targets, feeder and DT Metering as well as upgrading and replacement of transformers
  • Regions with sustained loss reduction should be incentivised (rewarded) by increased hours of supply
  • Other initiatives that can be taken to reduce discom inefficiencies:
  • Laying down a specific performance-monitoring & compliance mechanism (can be incentivised by additional funding and other inputs)
  • Monitoring of lending by banks to ensure reliable supply of investment
  • Ensure regular tariff setting
  • Energy auditing of feeders
  • Metering of distribution transformers (DT)
  • Elimination of revenue gaps
  • Allow fuel-cost adjustments in final tariffs
  • Reduction in short-term power purchase
  • Liquidation of Regulatory Assets
  • Ensuring advance payments of subsidies
  • Attractive to States:
  • The additional liability will not be considered for assessing fiscal responsibility limits of States
  • The 3 to 4 percentage point reduction in interest rates will serve as a relief

Issues with Uday

  • State Subject: Electricity is not a Central subject and thus, the scheme cannot be made a compulsory one- which leaves the door open for unequal working of the Discom per State.
  • No monetary assistance is being provided by the State though states willing to become a part of the scheme will be granted with subsidised funding in the government’s schemes and priority in the supply of coal
  • The conversion of discom debt into bonds is not as difficult as is finding a suitable buyer for those bonds, not enjoying SLR Status additionally

 

 

 · As of December 2016, 19 of the 22 states have invoked revisions in the tariff structures which is a positive sign.

 · UDAY has put a target of 15% for AT&C losses and presently 3 of the 16 states on which information is available have a number of less than 15%. Four states, Bihar, Jharkhand, Manipur and J & K have losses of over 30% while UP is close to this mark at 29.3%. These states will have to work hard to lower their losses over the next couple of years.

 · The five states with the highest issuances show a mixed picture. While AP is well below the target, Punjab is just above the 15% mark. However, MP, Haryana and Rajasthan have a long way to go in bringing about improvement in this efficiency parameter.

 · UDAY also speaks of equalizing the difference between average cost and revenue. Presently 2 of the 16 states have negative ACS-ARR, meaning thereby that they are earning a profit. Interestingly, the states with higher AT&C losses have higher net revenue. For this series of states, the coefficient of correlation between AT&C losses and ACS-ARR is as high as 82%. Clearly, if states are able to lower these losses, they would be able to witness simultaneously higher revenue thus reducing the ACS-ARR equation.

 Other targets

 · Feeder metering was 100% for urban and 97% for rural and almost all states scored a similar score. However for rural feeder metering J & K (34%), Jharkhand (13%) and Bihar (58%) were low down the scale. The target for achieving this objective was June 2016.

 · DT metering, where the due date is June 2017, averaged around 47% for both rural and urban and the better compliance rates came from Jharkhand, Karnataka, Gujarat, Goa, AP, Uttarakhand, Manipur in the urban areas and Goa, Gujarat and Manipur in rural.

 · The progress for smart metering has been virtually non-existent for almost all the states and they would have to put in effort to meet the deadlines of Dec 2017 and 2019 for above 500 kwh and 200-500 kwh respectively.

 Conclusions

 · The overall progress appears to be fairly satisfactory. The conversion of debt into UDAY bonds has been implemented fairly widely across the signing states, which is a positive in terms of alleviating the finances of the DISCOMs. The main term of engagement of revising tariff has also been done by most of the states, which is a positive sign. In terms of cutting down on transmission losses, some have to work hard and if done successfully, could automatically improve the cost-revenue ratio and make them more profitable. This is more in the hands of the DISCOMs.

 · Progress on operational issues has varied and feeder metering has done better than the DT metering. Smart metering has been a non-starter virtually.

 · States have made good progress in terms of providing electricity to the non-connected households which is a major achievement.

 · States have been more or less active in distribution of LED lights.

 In general it may be said that generally all the states with zero or low issuance of UDAY bonds tend to also have better financial and operational parameters. It may be expected that as the debt issue is addressed through loan conversion, DISCOMs can work better with their state governments to meet all the targets by 2019.

  • Distribution Companies’ (Discom) losses, which had progressively reduced in the first couple of years since the rollout of Ujwal Discom Assurance Yojana (UDAY) in November 2015, have rebounded in the financial year 2019.
  • Book losses of discoms reduced from Rs 51,562 crore in the financial year 2016 to Rs 15,132 crore in 2018. However, the losses in 2019 have nearly doubled to Rs 28,036 crore vis-a-vis 2018. This points that discoms are lagging behind in eliminating the ACS-ARR gap (the gap between Average Cost of Supply and Average Revenue Realised).
  • Discoms have also missed the year 2019 UDAY target to bring down their Aggregate Technical and Commercial (AT&C) losses to 15%.
  • The primary reason is the failure of discoms to collect the full cost that they pay for power — the same issue that had led to the floundering of the previous two schemes Accelerated Power Development and Reforms Programme (APDRP) and Restructured APDRP (R-APDRP).
  • Aggregate Technical and Commercial (AT&C) Losses
  • It has two components
  • Technical Loss: It is due to the flow of power in transmission and distribution system.
  • Commercial Loss: It is due to theft of electricity, deficiencies in metering, etc.
  • The Ujwal Discom Assurance Yojana (UDAY) was launched by the Ministry of Power in November 2015 to help turn around the poor financial situation of state discoms.

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