Has Uday lessened India's power mess?

There are some positive signs, but one cannot say it has made a positive difference

On November 20, 2015, Prime Minister Narendra Modi’s government launched the Ujwal Discom Assurance Yojana (Uday) to improve the operational and financial efficiency of the state power distribution companies (discoms), with the outcomes to be measured through (a) reduction of aggregate technical and commercial (AT&C) losses to 15 per cent in 2018-19 and (b) reduction in gap between average cost of supply (ACS) and average revenue realised (ARR) to zero by 2018-19.

The government has designed several interventions to achieve these outcomes. These include: (a) taking over by the state governments of 75 per cent of the discoms’ debt as on September 30, 2015, over two years (50 per cent in 2015-16 and 25 per cent in 2016-17); (b) comprehensive IEC (information, education and communication) campaign to check power theft; and (c) quarterly tariff revision, particularly to offset fuel price increase.

Has Uday made any difference?

According to the data on the Uday website (www.uday.gov.in), of the total bonds amounting to Rs 268,778.21 crore, bonds amounting to Rs 232,500 crore have been issued. Given that these figures do not include the data for 11 of the 27 states and Union Territories that have opted for Uday, and given that the figure of Rs 268,778.21 crore covers only 75 per cent of the debt of the discoms in the remaining 16 states and Union Territories, one can guesstimate the discoms’ total debt as on September 30, 2015: roughly Rs 8 lakh crore — which works out to as much as 5.86 per cent of the GDP.

This is just one part of the mess India’s power sector is in. The other parts include: underutilisation of the power generation capacity; discoms not buying as much power as they should, not because they don’t have demand for the power they can supply, but because their weak finances don’t allow them to buy adequate power, and therefore they resort to load-shedding; and many on the demand side, responding to the discoms’ such behaviour by using power from captive power plants, when power from the grid is not available, at a price which is substantially higher than the grid power price. Sadly, this has been going on for years.

The government is hoping that with reduction of AT&C losses to 15 per cent in 2018-19 and with reduction in the ACS-ARR gap to zero by 2018-19, the discoms will start buying as much power as they should and stop load shedding, with the consumers meeting all of their power requirements from the grid.

Uday is over 18 months old now. Has it made any difference? Are things happening the way the government assumed they would? Is there any reduction in AT&C losses? Is there any reduction in the ACS-ARR gap? Are the discoms buying more power? Is there any reduction in load-shedding by them? Is there any reduction in the demand for captive power?

Data from Uday website show reduction of 4.03 percentage points in aggregate technical and commercial losses in three months as on December 31, 2016. This suggests government may have already achieved its 2018-19 target of reducing losses to 15%

Is there any reduction in AT&C losses?

Uday aims to reduce AT&C losses to 15 per cent in 2018-19. How? Through a comprehensive IEC campaign to address the chronic problem of widespread, massive theft of power. The expected date of completion of this campaign was December 31, 2016. What were the contents of this campaign? Who designed them and who conducted the campaign? What’s the causal link between the IEC campaign and reduction in AT&C loss?

According to the data on the Uday website, AT&C losses averaged 23.98 per cent for 16 states as on September 30, 2016. But these losses averaged 19.95 per cent for 22 states as on December 31, 2016. Which means that there was a reduction of as much as 4.03 percentage points in these losses in just three months. And this suggests that the government may have already achieved its 2018-19 target of reducing AT&C losses to 15 per cent!

What is it that has caused such a remarkable reduction in AT&C losses? Is it the IEC campaign? There is no evidence suggesting such a causal link.

Is there any reduction in the ACS-ARR gap?

The ACS-ARR gap averaged 67 paise per unit for 16 states as on September 30, 2016. But the gap averaged 48 paise per unit for 22 states as on December 31, 2016. Which means that there was a reduction of as many as 19 paise per unit in this gap in just three months.

How much of this reduction in the ACS-ARR gap can be attributed to taking over by the state governments of 75 per cent of the discoms’ debt as on September 30, 2015, and how much to other interventions?

Are discoms buying more power?

The Uday website has no answer to this question, but this is what Tata Power MD Anil Sardana said in a recent press interview: “Uday has helped discoms and improved payments, but the biggest challenge for the sector continues to be the offtake of power. Discoms are still reluctant to buy power.”

Why is this so?

Will Uday succeed in delivering the intended outcome of making India’s discoms financially viable, so that they are no longer a burden on the country’s public finances and so that they don’t have to be bailed out again and again?

There are certainly some positive signs, but one cannot, because of lack of corroborative evidence, definitely say that Uday has made a positive difference. One will have to wait for some time before one can say something definite about Uday’s impact.

The author is a former professor of economics, Indian Institute of Management, Ahmedabad