Tamil Nadu joins UDAY; could accrue Rs 22,000-crore benefit in first 3 yrs

TN had been reluctant to join UDAY over mandatory revision of tariff every quarter under the scheme

After serious opposition in the past, Tamil Nadu has decided to join the Centre's Ujwal DISCOM Assurance Yojana (UDAY) scheme, which is meant to revive the debt stressed discoms in the county. Tamil Nadu will be the 21st state to join the scheme, which would help the Tamil Nadu Generation and Distribution Corporation (TANGEDCO) to save around Rs 11,000 crore.

The state would receive a benefit of about Rs 22,000 crore in the first three years from the scheme and about Rs 7,000 crore every year after that.

However, the flip side of joining the scheme is that the state's finances are expected to come under further pressure as 75 per cent of the Rs 30,420-crore debt of TANGEDCO will come to the state's balance sheet. The power distribution utility of Tamil Nadu alone has a debt of around Rs 50,000 crore. The overall debt of the discom has gone up to over Rs 80,000 crore, from around Rs 40,000 crore in 2010-2011.

The scheme envisages that the state will take over 75 per cent of the discom's debt in two phases and issue bonds backed by the state government as guarantee for the remaining 25 per cent. 

The scheme also mandates state discoms to achieve a turnaround through regular tariff hikes and wants states to keep the interest payment on bonds within the Fiscal Responsibility Budget Management Act, which stipulates that states should keep their fiscal deficit within three per cent of the gross state domestic product (GSDP). Tamil Nadu had reservations about the conditions in the scheme, which seem to have been sorted out.

On January 4, Tamil Nadu's Cabinet gave its nod for joining the UDAY scheme. It may be noted that under the leadership of former chief minister J Jayalalithaa, the state government had been opposing the scheme on various grounds and had urged the Centre to rectify the clauses which were perceived to be harmful for Tamil Nadu. 

Tamil Nadu had been reluctant to join UDAY, as it would be mandatory for states to revise power tariff every quarter under the scheme. The state had also been pushing the Centre to allow it to cross the fiscal deficit limit of three per cent of GSDP to enable it to absorb TANGEDCO's debt.

After a series of discussions, the state and centre made some headway after a meeting between Union Power Minister Piyush Goyal and Jayalalithaa in July and broad parameters had been broadly worked out back then.

On October 21 last year, a team led by the state's power minister, P Thangamani, held talks with the Union power minister again and an agreement was reached on many points. 

The key demands of the Tamil Nadu government accepted by the Union power ministry were: no quarterly tariff revision, and that bonds to be issued by TANGEDCO for repaying loans should be for 15 years, with a five-year moratorium and exemption from FRBM norms for the bonds allowed for two years.

The state government has been working on reducing the debt of the discom in the past. The government has earmarked a total financial support of Rs 13,586 crore for the power sector in the Budget Estimates 2015-2016. It has extended Rs 11,748 crore of support to TANGEDCO in the form of subsidy, share capital, cash-loss financing, debt servicing and debt takeover during 2014-15. 

A senior official from the state government had earlier said that the debt has gone up since the electricity board is spending almost Rs 10,000 crore every year as capital investment, for which it has to borrow money.