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UDAY is a radiating instance of the utilization of the best values of cooperative and competitive federalism and has been evolved through discussions at the highest levels with multiple States. Adopting UDAY is discretionary for States, but provides the fastest, most efficient and financially most viable way for providing 24X7 Power for All. It will be operationalised through a tri-partite agreement amongst the Ministry of Power, State Government and the DISCOM. UDAY accelerates the process of reform across the entire power sector and will guarantee that power is within reach, reasonable and obtainable for all. Salient Features of UDAY • 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. • Government of India will not comprise the debt taken over by the States as per the above scheme in the calculation of fiscal deficit of individual States in the financial years 2015-16 and 2016-17. • States will issue non-SLR together with SDL bonds in the market or directly to the respective banks / Financial Institutions (FIs) holding the DISCOM debt to the appropriate extent. • DISCOM debt not taken over by the State shall be transformed by the Banks / FIs into loans or bonds with interest rate not more than the bank’s base rate plus 0.1%. Alternately, this debt may be fully or partly issued by the DISCOM as State guaranteed DISCOM bonds at the existing market rates which shall be equal to or less than bank base rate plus 0.1%. • States shall take over the future losses of DISCOMs in a graded manner and shall fund them as seen in the table above. • State DISCOMs will comply with the Renewable Purchase Obligation (RPO) outstanding since 1st April, 2012, within a period to be decided in consultation with Ministry of Power. • States accepting UDAY and performing as per operational milestones will be given additional / priority funding through Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY),Integrated Power Development Scheme (IPDS), Power Sector POWER SECTOR Year 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Development Fund (PSDF) or other such schemes of Ministry of Power and Ministry of New and Renewable Energy. • Such States shall also be supported with supplementary coal at notified prices and, in case of availability through higher capacity utilization, low cost power from NTPC and other Central Public Sector Undertakings (CPSUs). • States not meeting operational milestones will be accountable to surrender their claim on IPDS and DDUGJY grants. • UDAY is optional for all States. However, States are encouraged to take the benefit at the earliest as benefits are dependent on the performance. Ujwal DISCOM Assurance Yojna is counted next innovative move from the Government for the distressed state power utilities. ICRA, an independent investment information and credit rating agency of India, has come out with its own report on the scheme, which talks about its probable impacts on power sector and other sectors that are closely related to it. Implications for Power Sector • ICRA, is of the analysis that the UDAY scheme is a major positive for the power sector. ICRA estimates that if the scheme isv implemented, the comprehensive aid to discoms is likely to be around Rs. 880 billion per year by FY 2019 which translates into a decline in losses by around Rs. 0.95/unit on an all India basis, although the per unit impact on the most affected states namely Uttar Pradesh, Tamil Nadu, Rajasthan and Haryana are likely to be significantly higher. This in turn should enable the distribution utilities to breakeven over the next 3-4 year period. The key components of savings as estimated by ICRA are as under: • ICRA expects that the takeover of debt by state governments is likely to translate into a savings in interest costs by about Rs. 460 billion for discoms, which translates into a relief in cost of supply by about Rs. 0.50/unit on all India basis by end of FY 2018. The impact on cost of supply for distribution utilities in 4 states (Tamil Nadu, Rajasthan, Uttar Pradesh & Haryana) would however be significantly higher- in the range of Rs.0.9/unit to Rs.1.7/unit. • ICRA believes that the steps to reduce cost of power purchase such as improvement in domestic coal supply by Coal India Ltd (as seen in 7% growth in FY 15 and around 9% in H1 FY 2016 on y.o.y basis) as well as measures like rationalisation of coal linkages & coal swapping from in-efficient to efficient plants remain positive for the power sector. As per ICRA estimates, sustained improvement in domestic coal supply is expected to result in aggregate savings of Rs. 160 billion by FY 2019 purely due to reduction in dependence on costlier source of imported coal alone by the affected IPPs. In addition, there will be savings on account of rationalisation of coal linkages and swapping. • Further, for every 1% reduction in AT&C loss level, ICRA estimates decrease in cost of supply by about Rs. 65 billion at all India level which translates into Rs. 0.08/unit which implies aggregate relief of about Rs. 0.32/unit (or Rs. 260 billion) by FY 2019, assuming a reduction in AT&C loss level of 400 bps from a level of 23% as seen on all India basis during FY 2014. AT&C loss levels for the discoms however vary widely across the states with significantly higher loss levels (ranging between 20% to 43%) in states such as Bihar, Uttar Pradesh, Rajasthan, and Madhya Pradesh & Haryana where a sharp & time-bound improvement in loss level is required. • It is noteworthy that the earlier financial restructuring scheme implemented by GoI in 6 states in FY 2013 has not resulted in any material improvement in the financialv position of discoms. This was mainly owing to continuance of non-cost reflective tariffs arising out of factors such as delays in filing of tariff petitions and issuance of tariff orders; non-implementation of periodic fuel cost pass-through mechanism; inadequate measures taken towards efficiency improvement includ- Previous Year’s DISCOM loss to be taken over by State 0% of the loss of 2014-15 0% of the loss of 2015-16 5% of the loss of 2016-17 10% of the loss of 2017-18 25% of the loss of 2018-19 50% of the previous year loss 75 energetica INDIA · ENE | FEB16


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