Motilal Oswal released a report on the performance of UDAY scheme.
What is UDAY Scheme?
It is the financial turnaround and revival package for electricity distribution companies of India (DISCOMs) initiated by the Government of Indiawith the intent to find a permanent solution to the financial mess that the power distribution is in.
Its objectives are
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.
What are its features?
States shall take over 75% of DISCOM debt as on 30 September 2015 over two years - 50% of DISCOM debt shall be taken over in 2015-16 and 25% in 2016-17.
Government of India will not include the debt taken over by the States as per the above scheme in the calculation of fiscal deficit of respective States in the financial years 2015-16 and 2016-17.
States not meeting operational milestones will be liable to forfeit their claim on IPDS and DDUGJY grants.
States will issue non-SLR including SDL bonds in the market or directly to the respective banks / Financial Institutions (FIs) holding the DISCOM debt to the appropriate extent.
What are the finding of the report?
UDAY failed to bring a new dawn for the State-run power distribution sector, despite 82 per cent of bailout package (bonds) utilised by States.
Out of the 21 States that participated in the scheme, operational losses i.e the difference between the average cost of supply (ACS) and average revenue realised (ARR), increased in seven States during April-September 2016.
The exceptions are Gujarat and Chhattisgarh. While Gujarat discom increased profits, Chhattisgarh earned a positive margin.
They were one of the few better managed discoms (along with West Bengal that didn’t participate in UDAY) and continue to remain so.
The gap widened in Haryana, Madhya Pradesh, Punjab, Karnataka, Jharkhand, Bihar and Uttarakhand.
Maharashtra is maintaining the small gap as it was. Andhra Pradesh and Rajasthan reduced the gap.
What are the implications?
Revenue loss can be a function of either high cost of electricity purchase or low tariff. But AT&C loss is a clear measure of the operational efficiency of a discom.
Like the previous two bailout packages in 2001 and 2012, UDAY too insisted on reducing AT&C losses to a respectable 15 per cent.
But the figures show discoms utilised funds to clear the balance-sheet without much attempt to improve efficiency.
AT&C losses have increased by 0.7 per cent to 16.1 per cent in 10 states, including Haryana, Karnataka, Maharashtra, Rajasthan, Andhra Pradesh, Bihar, Punjab, Chhattisgarh, Uttarakhand and MP.
The bottomline is, if there is no improvement in operational efficiency, there will soon be need for another UDAY.
