The union cabinet under the chairmanship of prime minister Narendra Modi has accorded its approval for an extension of timeline for taking over 50 percent of the outstanding debt of power distribution companies (DISCOMs) under UDAY (Ujjwal DISCOM Assurance Yojana) - a scheme for operational and financial turnaround of DISCOMs, as per a release by PIB. 

The time limits have now been extended by one year from the earlier stipulated date of March 31, 2016. This decision would allow states, which could not participate in the scheme UDAY earlier, to join the scheme.

Under UDAY, 19 states have so far already given their consent to join the scheme, out of which 10 states – Rajasthan, Uttar Pradesh, Chhattisgarh, Jharkhand, Punjab, Bihar, Haryana, Gujarat, Uttarakhand and Jammu & Kashmir have already signed MOUs with the central government.

In the year 2015-16, bonds worth Rs 99,541 crores were floated by the participating states to clear 50 percent of the outstanding debt of states and outstanding CPSU dues in Jharkhand and Jammu & Kashmir. Further, DISCOM bonds worth Rs 11,524 crores were floated. In the year 2016-17, bonds worth Rs 14,801 crores have been floated by the state of Uttar Pradesh.

UDAY provides for the financial turnaround and revival of DISCOMs and ensures a sustainable permanent solution to this long standing problem.

UDAY envisages a permanent solution of past as well as potential future issues of the sector. It empowers DISCOMs with the opportunity to break even in the next 2-3 years. This is through four initiatives:
 

• Improving operational efficiencies of DISCOMs;
• Reduction of cost of power;
• Reduction in interest cost of DISCOMs through states taking over 75 percent of the DISCOM debts, as on September 30, 2015 over two years, and the rest being re-priced through bonds and loans at lower interest rates; and
• Enforcing financial discipline on DISCOMs through alignment with state finances.

Operational efficiency improvements like compulsory smart metering, upgradation of transformers, meters etc., energy efficiency measures like efficient LED bulbs, agricultural pumps, fans and air-conditioners etc. will reduce the average Aggregate Technical and Commercial (AT&C) loss from around 22 percent to 15 percent and eliminate the gap between average revenue realised (ARR)  and average cost of supply (ACS) by 2018-19.

Reduction in cost of power would be achieved through measures such as increased supply of cheaper domestic coal, coal linkage rationalisation, liberal coal swaps from inefficient to efficient plants, coal price rationalisation based on GCV (Gross Calorific Value), supply of washed and crushed coal and faster completion of transmission lines.

With this approval for the extension of timeline, the states shall take over 75 percent of DISCOM debt as on September 30, 2015 by March 31, 2017 by issuing bonds, an intervention to lower the interest burden of debts. With the approval, states which could not join so far would get an opportunity to join UDAY and put the DISCOM reforms on an accelerated path.