The Union Cabinet chaired by the Prime Minister Narendra Modi, has given its approval to a new scheme moved by the Ministry of Power – Ujwal DISCOM Assurance Yojna or UDAY for the financial turnaround and revival of Power Distribution companies (DISCOMs), and importantly also ensures a sustainable permanent solution to the problem.
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Announcing the Cabinet decision, Union Power Minster Piyush Goyal told reporters that the Centre aims to help states in wiping out the discoms’ losses by 2019.
States shall take over 75 per cent of discom debt as on September 2015 over two years- 50 per cent shall be taken over in FY16 and 25 per cent in FY17.
As per the terms of the new UDAY programme, the books of discoms would be cleaned up with state governments taking over 75 per cent of their debt in its accounts.
Talks with Rajasthan government have reached finalisation stage, he said. It said that Discoms in the country have accumulated losses of around Rs 3.8 lakh crore and outstanding debt of approximately Rs 4.3 lakh crore (as of March, 2015).
“These losses are overwhelmingly concentrated among distribution companies and bundled utilities – state electricity boards (SEBs) and the state power departments”, said the World Bank study, adding this had pushed up the power sector’s debt to over Rs.500,000 crore. Meanwhile between 2011/12 and 2014/15, with interest rates up to 14-15%, Discom’s outstanding debt almost doubled from INR2.4 trillion to INR 4.3 trillion (US$65.4 billion), according to the Ministry of Power.
Mr.Goyal added that the Government will not include in the calculation of fiscal deficit of respective States in the financial years 2015-16 and 2016-17 the debt taken over by them under the scheme. States not meeting operational milestones will be liable to forfeit their claim on other incentives given under other schemes UDAY is optional for all States.
But the package failed to lift power stocks.
“A clear road map has been drawn to solve the present crisis of discoms”, he said at the opening of the conference of state power ministers here, while referring to the discoms debt restructuring plan cleared by the cabinet in New Delhi on Thursday. Debt of DISCOMs is de facto borrowing of States which is not counted in de jure borrowing. This is through four initiatives (i) Improving operational efficiencies of DISCOMs; (ii) Reduction of cost of power; (iii) Reduction in interest cost of DISCOMs; (iv) Enforcing financial discipline on DISCOMs through alignment with State finances.
Operational efficiency improvements are proposed to be brought in by compulsory smart metering, upgradation of transformers and meters to reduce electricity lost during transmission and distribution (or theft) from around 22 per cent to 15 per cent by 2018-19.
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“Due to legacy issues, discoms are trapped in a vicious cycle. Bankers will obviously be cautious in lending more to these discoms in the future”, said Ashwani Kumar, chairman and managing director, Dena Bank, and chairman, Indian Banks’ Association.
