 "Four states set precedent for stringent targets under UDAY")
As four major states sign up for Ujwal Discom Assurance Yojana (UDAY), around 34% of the total power distribution companies’ (discoms) debt is now under restructuring. A major portion of this debt is being taken over as grant, which is likely to impact the state’s finances.
However, for the four states namely Rajasthan, Uttar Pradesh, Chhattisgarh and Jharkhand, the stringent targets set a precedent for other states that will join. Punjab, Haryana and Bihar would sign MoU soon. So far, 16 states have given in-principle approval to join UDAY.
The Memorandum of Understanding (MoU), which runs into 90+ pages each, reviewed by Business Standard lists key parameters. The targets against each parameter are being decided by the state.
Also Read
State government will issue non-SLR bonds against same. The MoU also entails reduction in technical and commercial losses and improving operational efficiencies.
Senior officials said Uttar Pradesh with a debt exposure of Rs 53210 crore is likely to issue bonds worth Rs 26,600 crore this month at the prevailing market rate of 8.4%. The state government made a supplementary budgetary allocation for same last week, said senior state government officials.
“We are exploring the bonds to be issued to existing lenders. LIC and EPFO have also expressed interest. The two legislative houses have approved issuance of bonds by the state government, the proceeds of which will be shared with the UP Power Corporation Limited (UPPCL),” said the official in the state finance department.
UP is taking over Rs 19,000 crore as grant for which the discoms would not pay any interest rate, and Rs 9,977 crore each as loan and equity each. The state will earn dividend for equity amount and interest rate for the loan from the discoms.
Jharkhand and Chhattisgarh are taking over respective discoms’ debt in form of grant as a whole. Rajasthan, with the highest debt exposure of Rs 80,529 crore is yet to decide and will mention details in its state budget.
The cumulative amount taken over as grant for UP, Jharkhand & Chhattisgarh is 12,200 crore. Rajasthan, if takes 50% of its debt as grant, then it'll be Rs 40,000 crore — a major setback to the state's finances already under fiscal stress.
Rajasthan state government officials said, for now the state government is looking to take over the debt as grant, as the discoms are financially stressed and would not be able to pay any interest or dividend.
The silver lining however is that coupled with strict operational efficiency targets, an overhaul of power distribution is in sight. The states are hopeful that minimal or nil tariff hike along with improvement in power services would improve their operations and financials both. The MoU does not mentions any tariff changes.
UP which has the highest aggregate technical and commercial losses (AT&C), owing to high levels of energy theft would bring it down to 28% from current 32.36%. This translates into halving the energy theft and improving last mile power distribution.
Senior power department officials said the work of underground cabling and metering has started in 20 major towns. The four states have also committed that bill collection efficiency would be improved to close to 100%, a tall order given the high number of non-metered areas in these states.
The average cost of supply (ACS) of power and average revenue realisation (ARR) being in the range of 1.7 to 3.5 percent in these four states, is to be brought down to zero.
While Chhattisgarh aims to do this by next year, UP has committed by 2019-20.
PLUG INTO POWER NEEDS
AT&C losses (%)
Collection Efficiency (%)
