Himachal becomes part of power sector reforms under UDAY

Power sector distribution companies owe banks Rs 5.5 lakh crore

GN Bureau | December 9, 2015



Power minister Piyush Goyal on Wednesday expressed confidence that all the states in the country will join the Centre's 'UDAY' scheme for revival of debt-laden power distribution companies as Himachal Pradesh today became the fourth state after Andhra Pradesh, Jharkhand and Rajasthan to join the scheme.

"Congratulations to Himachal Pradesh on joining UDAY (Ujwal Discom Assurance Yojana). We are confident of every single state joining UDAY," Goyal said in a tweet.
 
The minister further said he met the heads of all the banks with exposure to discoms.

"Met the heads of all the banks with exposure to discoms. All banks are fully participating in UDAY," he tweeted.

The scheme is optional and gets operationalised by signing a pact between states, state discoms and the Centre.

Collectively, discoms owe banks Rs 5.5 lakh crore. This is a sum equivalent to two-and-a-half times the defence budget; roughly six times the amount that will be spent this financial year on building roads; and enough to wipe out India’s fiscal deficit. Rajasthan alone having a debt of Rs 85,000 crore, followed by Tamil Nadu at Rs 70,000 crore and UP at Rs 32,000 crore.
 
The Cabinet on November 5 cleared an ambitious $7 billion debt recast and reform package to revive the loss-making state discom utilities. The Ujjwal Discom Assurance Yojana (UDAY) is seen by market watchers as a gamechanger. Under the scheme, states are being encourgaed to take over 75 per cent of the debt  (50% in 2015-16 and 25% in 2016-17) of the ailing state electricity boards, which will not be calculated as part of their fiscal deficit till 2016-17.

States are naturally apprehensive on taking the debt on their books. But the point is: do they have a choice? If they do not agree to the package, they continue to face power shortages. Power plants are operating at their lowest level of 59% of their capacity as discoms do not have the money to buy power.

Though state governments treat discoms loans separately rating analysts and multilateral agencies consider the debt of the discoms as that of the state government since they guarantee the payment. Most of the trouble of discoms is because state government’s for political reasons did not allow them to raise tariff in line with the cost.

The central government's UDAY aims at reviving ailing state electricity boards and operational efficiency of power distribution companies. It envisages on reducing interest burden, cost of power and AT&C losses.

Consequently, the discoms will become sustainable to provide adequate and reliable power enabling 24x7 power supply. The scheme provides that states would take over 75% debt of discoms, as on September 30 in two years.

The UDAY focuses on four major initiatives improving operational efficiencies of discoms; reduction of cost of power; reduction in interest cost of discoms and enforcing financial discipline on discoms through alignment with state finances.

Key to the success of the scheme is acceptance and implementation by state governments. In the current policy central government is using a carrot and stick approach to see that states toe the line. As an incentive, the states adhering to the operational milestones will be given additional central funding through Deendayal Upadhyaya Gram Jyoti Yojana, Integrated Power Development Scheme, Power System Development Fund or other such schemes by the ministry of power and renewable energy.

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