about 1 year ago
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Looks like the most tom-tommed UDAY scheme is shrouded in dark clouds; there seems to be simply no light!

Crisil put out a report this week stating that the external debt of state-owned electricity distribution companies (discoms) is set to increase to pre-UDAY levels of Rs.2.6 lakh crore by the end of this fiscal. This is based on an analysis of discoms in 15 states that account for 85% of the aggregate losses.

UDAY or Ujwal Discom Assurance Yojana aim was to financially stabilize discoms by allowing them to convert their debt into state government bonds, subject to certain conditions. This was approved by the Cabinet in Nov 2015.

Well, debt did come down - from Rs.2.7 lakh crore in Sept’15 to Rs.1.9 lakh crore in FY16 and Rs.1.5 lakh crore in FY17.  It is now estimated to be at Rs.2.28 lakh crore in FY19 and at a staggering Rs.2.64 lakh crore in FY20.

Under UDAY, the strategy was to bring down aggregate technical and commercial (AT&C) losses by 900 bps to 15% in FY19. And the plan was to bring about regular tariff hikes of 5-6% per annum. In lieu of this, state govt’s were to take over 75% of the discom debts.

The states did do their bit by issuing bonds totaling over Rs.2,32,000 crore; so debts and thereby the interest burden did come down for the discoms. But they did not keep up to their end of the promise.  AT&C losses could be brought down by 400 bps till end of Dec’18 and tariff’s were hiked at an average of 3% since Nov’15.

So why are the discoms in this state of complete despair?

First and foremost reason is clearly the political interference. Power tariffs are suppressed simply because if hiked, even for economic reasons, it will lead to a political hara-kiri.

Second is the huge loss on account of AT&C, which at 25% or more is a huge loss to bear. A few states in India carry the dubious distinction of being states where 80% of the power is stolen.

Many Thermal power projects are into losses due to unrealistic and overly optimistic tariff bidding. Only 13 Ultra Mega Power Projects (UMPPs) have seen the light of the day since 2005.

There are also the other reasons – no long term buyers, uncertain and inadequate fuel supply, infra bottlenecks. These reasons have been constant for decades together – nothing, absolutely nothing has been done to do away with these problems plaguing the sector.

These reasons in turn is leading to delays in new capacity additions, leading to increased cost of producing thermal power, ultimately hitting the discoms and the end users.

Right now the entire political machinery in India is focused only on winning the elections; so no steps to correct anything will be taken till end of Q1FY20.

But then the question is whether there is political will to walk the talk and implement long-pending distribution reforms. Do the political leaders have the courage to charge the end user what is reasonable for the electricity he/she uses?

We talk about economic growth all the time but without electricity, will those in power ever get this heavy and outdated engine to chug along?

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