Critical analysis of Uday

The sustainability of a nation depends on the resource accessibility attained by its citizens. Electricity has become the basic commodity. It reaches the end-consumer through the chain constituted of generation, transmission and distribution. Distribution is reckoned to be the critical link as it couples the power industry to its consumers. Any flaw in this link can act as the growth inhibitor. The ailing situation of state discoms is holistically imparting an adverse impact on the whole sector in terms of investment and growth and is raising the question of their viability.

Prevailing scenario-

Discoms losses as on Mar 2015 are estimated at Rs. 4.3 trillion whereas the accumulated losses reached Rs. 3.8 trillion. The debt observed a spike of 79% from Rs. 2.4 trillion in FY12 to Rs. 4.3 trillion in Q4 of FY15. Non- regularity in tariff revisions along with the poor coal logistics also led to an increased average cost of supply.

Positive aspects-

The Uday provides for the debt takeover by states in a time-graded manner. 75% of the debt will be phased out in the two blocks of 50% and 25% in FY16 and FY17 respectively whereas 25% of debt will be the onus of state which is to be cleared out of discoms itself through the bank’s assistance. This scheme has positive takeaways like-

  • Power cost reduction-

It will be achieved through the wider applications of competitive bidding. Coal being the base source for power urge for its full makeover. This has been well-targeted through the provision of linkage rationalization, swapping and CIL supply obligation of crushed coal supply to generators.

  • Concern for operational efficiency enhancement-

It is a well-proven fact that the efficiency maximization is the key to assuring the long-term financial stability of discoms. It has been properly implemented in Uday through the inclusion of feeder segregation, DSM programs, smart meters, etc.

Even a time limit is stipulated for these actions like AT&C should be reduced to 15% by 2019, feeders metering by Jun 2016 and consumers indexing & GIS mapping to be done by Sep 2018.

A road towards the dusk-

Uday along with its brighter side also lacks in some aspects. It is not open for private discoms currently though their inclusion is under consideration but their financial bailout will still not be the realm of the state. Even joining and signing of the MoU under tripartite agreement in this scheme is optional. However, this point has been proved redundant against the excessive participation trend shown by states. Till now, 24 states have shown their willingness to join while 17 have already signed MoU.

The biggest flaw is the lack of penalties which directly mirrors the mistake of the past initiative of revival i.e. FRP scheme. There is no specific monitoring and compliance mechanism. The Uday structure is also inherently giving birth to a vicious debt recycle since the major banks/FIs who were already the lenders are again helping for the repayment. These inefficient features must be properly carved to make this endeavor so strong that it ultimately attains its goal.

A golden opportunity on the way-

Along with providing a mode of past burden clearance, it is also facilitating a platform of funding from IPDS, PSDF and DDUGJY on additional/priority basis on the scale of performance fulfilled by the utilities. It also entails the gross savings of Rs. 1.8 trillion out of which AT&C loss reduction alone contribute to the savings of Rs. 0.57 trillion. The states also have the opportunity to give it due consideration and join after some time as the timeline is extended by one year from the earlier stipulated date of Mar 31, 2016. Utilities will also be incentivized in the form of more supply to them.

Uday & its lacunae-

The absence of a backup plan solely shifts the responsibility of its success to the discoms capability. The program of this scheme is conducted in such a way that non-timely tariff revision is the basic pillar and so regulatory commissions must take the required steps in creating a strong base for this pillar. Few states are crossing the line, like in the case of Tamil Nadu which has requested for a special concession of 50% write-off and 30% grant even after being the highest debtor with the debt of Rs. 0.7 trillion.

The road ahead-

The increased number of states coming on board is showing the zeal of entities working in this sector to make amends for their dark history and to regain their credibility as a power supplier. Uday has again raised a ray of hope in reference to the revival of debt-laden discoms. Its real benefit will be realized only if the timely implementation and proper monitoring will be in place. Uday is not a one-time settlement, but a continuous process of self-assessment and control.

 

 

 

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