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SUMMARY BY MOULIN OZA Ujwal DISCOM Assurance Yojna- Government of India’s Novel bailout scheme for State Power Utilities As part of the plan, adoption of which is voluntary, the states will have to take over 75% of the liability of DISCOM. Recently, the Union Cabinet has given its consent to a new scheme by the Ministry of Power i.e. Ujwal DISCOM Assurance Yojna/UDAY. UDAY provides for the fiscal swivel and restoration of Power Distribution companies (DISCOMs), and essentially also ensures a sustainable enduring solution to the problem. The scheme comes in the crucial time when State Electricity Boards with a collective debt of Rs.4.30 trillion and losses of approximately Rs.3.8 trillion, are on the periphery of economic fall. This has made them hesitant to purchase electricity, which affects the feasibility of power plants and the banks that have loaned capital to them. The majority of the on the whole liability is held by utilities in the states of Tamil Nadu, Rajasthan, Telangana, Uttar Pradesh, Andhra Pradesh, Bihar, Jharkhand and Haryana. The weakest link in the value chain is distribution, wherein DISCOMs in the country have accumulated losses of about Rs. 3.8 lakh crore and outstanding debt of approximately Rs. 4.3 lakh crore (as on March, 2015). Economically strained DISCOMs are not able to supply sufficient power at reasonable rates, which hampers quality of life and overall economic growth and development. Efforts towards 100% village electrification, 24X7 power supply and clean energy cannot be achieved without performing DISCOMs. Power outages also unfavourably affect national priorities like “Make in India” and “Digital India”. In addition, default on bank loans by financially stressed DISCOMs has the latent to critically impact the banking sector and the economy at large. Due to inheritance issues, DISCOMs are ensnared in a vicious cycle with operational losses being funded by debt. Outstanding debt of DISCOMs has amplified from about Rs. 2.4 lakh crore in 2011-12 to about Rs. 4.3 lakh crore in 2014-15, with interest rates upto14-15%. UDAY assures the augment of effervescent and competent DISCOMs through a lasting pledge of past as well as prospective future issues of the sector. It empowers DISCOMs with the prospect to break even in the upcoming 2-3 years. This is through four initiatives - (i) Improving operational efficiencies of DISCOMs (ii) Reduction of cost of power (iii) Reduction in interest cost of DISCOMs (iv) Enforcing financial discipline on DISCOMs through alignment with State finances Operational efficiency enhancements like obligatory smart metering, upgradation of transformers, meters etc., energy efficiency method like efficient LED bulbs, agricultural pumps, fans & air-conditioners etc. will diminish the average AT&C loss from around 22% to 15% and eliminate the gap between Average Revenue Realized (ARR) & Average Cost of Supply (ACS) by 2018-19. Reduction in price of power would be achieved through instruments such as improved supply of cheaper domestic coal, coal linkage validation, moderate coal swaps from inefficient to efficient plants, coal price rationalization based on GCV (Gross Calorific Value), supply of washed and crushed coal, and quicker conclusion of transmission lines. NTPC alone is expected to save Rs. 0.35 / unit through higher supply of domestic coal and rationalization / swapping of coal which will be passed on to DISCOMs / patrons. Financial liabilities of DISCOMs are the reliant liabilities of the individual States and need to be acknowledged as such. Debt of DISCOMs is de facto borrowing of States which is not counted in de jure borrowing. However, credit rating agencies and multiparty agencies are mindful of this de facto debt in their appraisals. In line with the above and similar annotations of Fourteenth Finance Commission, States shall take over 75% of DISCOM debt as on 30 September 2015 over two years - 50% of DISCOM debt shall be taken over in 2015-16 and 25% in 2016- 17. This will decrease the interest cost on the debt taken over by the States to around 8-9%, from as high as 14-15%; thus recuperating overall efficiency. Further provisions for spreading the financial burden on States over three years, will give States litheness in overseeing the interest payment on the debt taken over, within their available financial space in the early few years. An undeviating resolution to the problem of DISCOM losses is achieved by States taking over and funding at least 50% of the future losses (if any) of DISCOMs in a graded manner. POWER SECTOR 74 energética INDIA · ENE | FEB16


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