Ujwal DISCOM Assurance Yojna or UDAY Ministry of Power

by

Nakul Kumar Nayan

15AR60R06

DEPARTMENT OF ARCHITECTURE and REGIONAL PLANNING

INDIAN INSTITUTE OF TECHNOLOGY KHARAGPUR

Contents
1

Introduction........................................................................................................ 1

Aim.................................................................................................................. 2

Objectives........................................................................................................... 2

Permanent resolution of DISCOM issues.....................................................................2

4.1

Operational Efficiency..................................................................................... 3

4.2

Billing efficiency............................................................................................ 3

4.3

Infra augmentation & Smart Metering..................................................................3

4.4

Collection efficiency....................................................................................... 3

4.5

Demand Side Management to improve efficiency....................................................3

4.6

Energy Conservation through PAT.......................................................................4

4.7

Cost reduction through Central Support................................................................4

4.8

Reducing Cost of thermal Power.........................................................................4

4.9

Reducing Cost of Power...................................................................................4

4.10

Transmission Capacity Addition.........................................................................5

DISCOM in a debt trap........................................................................................... 5

5.1

State takeover of DISCOM debt.........................................................................5

5.2

Treatment of residual debt................................................................................. 5

5.3

Complying with RPO obligations........................................................................6

5.4

Ongoing DISCOM financing.............................................................................6

Additional Benefits for States................................................................................... 6

6.1

Outcomes Breakeven in next 2-3 years...............................................................6

6.2

MoU to be signed between MoP, State and DISCOM(s)............................................7

Benefits of UDAY................................................................................................. 7
7.1

Government.................................................................................................. 7

7.2

Industry & Consumers..................................................................................... 7

7.3

Banks & Investors.......................................................................................... 7

Conclusion.......................................................................................................... 8

1 Introduction
UDAY is a path breaking reform for realizing the vision of affordable and accessible 24x7 Power for
All. It is another decisive step furthering the landmark strides made in the Power sector over the past
one and a half years, with the sector witnessing a series of historic improvements.
Electricity is required to realize various vision like digital India, Skill India, smart cities, energy
efficiency, swachh bharat, make in India and various others. 24 X 7 power for all is the backbone for
the success of these programmes.
For achieving the goal of 24 X 7 power supply various reform were taken place. Electricity Supply
Act 1948, Industrial Policy Resolution (1956), Generation and distribution of power under state
ownership were some of the steps taken in pre liberalization era (1956-91). In post liberalization (9104) the steps taken were the Legislative and policy initiatives (1991), Private sector participation in
generation, Electricity Regulatory Commissions Act (1998) for establishing CERC and SERCs,
Electricity Act (2003) and APDRP/ RAPDRP/ RGGVY. Recent actions are the Coal Auctions and
record coal production, Increase in Power generation and Transmission capacity addition,
Implementation of Integrated Power Development Scheme (IPDS) and Deen Dayal Upadhyay, Gram
Jyoti Yojana (DDUGJY), LED lighting movement and Launch of UDAY.

Entire value chain of Power supply consists from fuel supply, to generation, transmission,
distribution and consumption.in which Discoms are the weakest link in providing 24X7
Power for All. Accumulated DISCOM losses & debt have skyrocketed in the last few years.
Accumulated Loss is about Rs. 3.8 lakh crore (Mar 15) and total Loss in last 6 years is approximately
Rs. 3.66 lakh crore.

UDAY (Ujwal DISCOM Assurance Yojana) aims at permanent and

sustainable solution of DISCOM issues. This has to be done by taking over the past debt by
states. Increasing the present operational efficiency, lowering the cost of power and enabling

the tariff increase for improvement of present condition and to avoid future problems by
implementing budgetary discipline.

2 Aim
Financial turnaround and revival of Power Distribution companies (DISCOMs), and
importantly also ensures a sustainable permanent solution to the problem.

3 Objectives
UDAY assures the rise of vibrant and efficient DISCOMs through a permanent resolution of
past as well as potential future issues of the sector. It empowers DISCOMs with the
opportunity to break even in the next 2-3 years. This is through four initiatives

Improving operational efficiencies of DISCOMs

Reduction of cost of power

Reduction in interest cost of DISCOMs

Enforcing financial discipline on DISCOMs through alignment with State finances.

4 Permanent resolution of DISCOM issues

Tariff increase no substitute for efficiency improvement. Regulators cannot pass on
inefficiency of DISCOMs to consumers. States with 30-40% losses cant expect consumers to
pay for their inefficiency. Most States have maintained tariff increase trajectory, average
annual increase in last five years at rate of 8%. There are various other measures will be
given importance to reduce financial loss. Some of them are

4.1

Operational Efficiency

It is driven by AT&C loss reduction. By increasing the billing and collection efficiency, reducing
AT&C losses performance of DICOMS can be improved significantly. Benefit will be that honest
consumers do not have to pay for dishonest consumers and will avoid unreasonable tariff hike.

4.2 Billing efficiency

It can be improved through metering and Tracking of losses. For this Compulsory feeder and
Distribution Transformer (DT) metering will be installed by States. It will provide ability to track
losses at the feeder and DT level for taking the corrective actions. Consumer Indexing & GIS
mapping of losses will be done for identification of loss making areas for corrective action.

4.3 Infra augmentation & Smart Metering

Upgrade or change transformers, meters etc. will be done to reduce technical losses and
minimize outages. Installation of smart metering for all consumers consuming above 200
units / month has to be done. Smart meters will be tamper proof and allow remote reading
thus helping reduce theft.

4.4 Collection efficiency

It has to be improved through public participation. Awareness campaign against theft will
ensure honest do not pay for dishonest and will enhance public participation to reduce
power theft. Assurance of increased power supply in areas where the AT&C losses reduce
will encourage local participation to reduce losses.

4.5 Demand Side Management to improve efficiency

Demand Side Management (DSM) with energy efficient equipment (by18-19): Reduce peak
load and energy consumption
LED bulbs: 77cr. HH bulbs & 3.5 cr. Streetlights

4.6 Energy Conservation through PAT

PAT (Perform, Achieve& Trade)-Energy-intensive industries achieve reduction in specific
energy consumption (per unit production).

4.7 Cost reduction through Central Support

Ministry of Power constituted two committees to facilitate States for mobilizing major
equipment committee-A, headed by the Chairperson, CEA, entrusted with the task of listing
out major equipment/ material, finalize technical specifications, aggregate requirement of
various states. Committee B, headed by Director (Projects) PGCIL, was entrusted to prepare
bidding documents, carry out bid processing through e-tendering under reverse bidding
mode, and evaluate bids and finalize rate contracts.

4.8 Reducing Cost of thermal Power

Increased supply of domestic coal to 200 mt will result in saving of Rs20, 000 cr and Coal
linkage rationalization to 500 mt will result in saving of Rs6, 000 cr. Liberally allowing coal
swaps from inefficient plants to efficient plants and from plants situated away from mines to
pithead plants to minimize cost of coal transportation of Rs10, 000 cr. Other means are coal
price rationalization based on Gross Calorific Value (GCV), correction in Coal grade slippage
through re-assessment of each mine, and correct tariff fixation and reduce coal theft.

4.9 Reducing Cost of Power

By completion of railway lines in JVs with States. Coal India to supply 100% washed coal
for G10 grade and above at plants > 500 km from mines by 1stOctober 2018 and 100%
crushed coal from Coal India by 1st Apr 2016.Faster completion of delayed transmission
lines , new transmission lines expedited planned for 2030 requirement and award of works of
about Rs. 1 lakh crore by 31stMarch 2016.

4.10 Transmission Capacity Addition

5 DISCOM in a debt trap

DISCOM debt interest rate is average ~ 12%, as high as 14-15% for many DISCOMs while
States borrow at ~ 8%
Regulators dont allow pass through of interest on past losses in tariff
Surgical intervention required to rationalise outstanding debt

5.1 State takeover of DISCOM debt

DISCOM debt is de facto borrowing of States which is not counted in de jure borrowing
States shall take over 75% of DISCOM debt as on 30 September 2015
Principal debt taken over will not be included in fiscal deficit of States. However, interest
has to be serviced within FRBM limits
States will issue non-SLR bonds (SDL) with maturity period of 10-15 years with a
moratorium on principal up to 5 years 38 Past

5.2 Treatment of residual debt

Up to 25% of the grant can be given as equity
DISCOM debt to be taken over by the State will include DISCOM bonds which are
committed to be taken over by the State as part of FRP 2012 including bonds already taken
over in 2015-16
Residual DISCOM debt to be converted into bonds to be offered to market at a likely rate of
State Bond + 0.2%. If not converted into bonds, Banks can lend at < Base rate + 0.1%
Scheme available only for State DISCOMs including combined generation, transmission and
distribution undertakings

5.3 Complying with RPO obligations

DISCOMs to comply with the Renewable Purchase Obligation (RPO) outstanding since 1st
April, 2012, within a period to be decided in consultation with MoP
Clear large number of RPOs with developers
Impetus to clean energy markets

5.4 Ongoing DISCOM financing

Loss financing only as per loss trajectory finalized with MoP and only through DISCOM
bonds backed by State guarantee
Working capital will only be allowed up to 25% of the DISCOMs previous years annual
revenue

6 Additional Benefits for States

States accepting the scheme and performing as per operational milestones will be given
additional / priority funding through DDUGJY, IPDS, Power System Development Fund
(PSDF) or other such schemes of MoP and MNRE
Such States shall also be supported with additional 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)

6.1 Outcomes Breakeven in next 2-3 years

Reduction of AT&C loss to 15% in 2018-19
Reduction in gap between Average Revenue Realized (ARR) & Average Cost of Supply
(ACS) to zero by 2018-19
Almost all DISCOMs to be profitable by 2017-18, 3-4 by 2018-19

6.2 MoU to be signed between MoP, State and DISCOM(s)

Clear identification of responsibilities of each of the three parties
Details of specific operational activities to be undertaken in the State
Circle level targets of loss reduction with responsibilities, resources and timelines
MoU targets to be reviewed on a monthly basis by MoP

7 Benefits of UDAY
7.1 Government
Achievement of 24X7 Power for All
Power to 5 crore households without electricity
Speedy achievement of electrification of remaining 18,500 villages
Energy security through coal and renewables
Reduce Current Account Deficit (CAD) from higher diesel import (current annual imports of
around Rs. 50,000 crore)
Meet ambitious renewable energy commitments as a responsible global citizen
Revive investments in power sector to create jobs

7.2 Industry & Consumers

Availability of 24X7 power improving quality of life and efficiency
Lower cost of power -Typical 3,000 MW NTPC plant running at 60% Plant Load Factor
(PLF) has a fixed cost of Rs. 2.67 / unit, vs Rs. 1.80 at 90% PLF
Global competitiveness of industry

7.3 Banks & Investors

Avoid banking contagion (Rs, 40,000 crore of repayments due to banks in 2015-16) which
will create significant NPAs
7

Lower risk for existing investments and loans in power, coal and renewables sector
Lower capital adequacy
Increased procurement of power by DISCOMs revives existing power projects suffering
from low PLFs
Reduce investment uncertainty across the sector

8 Conclusion
UDAY is a shining example of the utilization of the best principles of cooperative and
competitive federalism and has been evolved through discussions at the highest levels with
multiple States. Adopting UDAY is optional for States, but provides the fastest, most efficient
and financially most feasible way for providing 24X7 Power for All. It will be
operationalized 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 ensure that
power is accessible, affordable and available for all. UDAY truly heralds the uday (rise), of a
Powerful India.

References:
UDAY (Ujwal DISCOM Assurance Yojana) for financial turnaround of Power Distribution
Companies.

(n.d.).

Retrieved

April

17,

2016,

from

http://pib.nic.in/newsite/PrintRelease.aspx?relid=130261.
Government's UDAY scheme may light up power distribution companies: Crisil. (2016).
Retrieved April 17, 2016, from http://www.thehindu.com/business/Industry/governmentsuday-scheme-may-light-up-power-distribution-companies-crisil/article8098818.ece
Ministry of Power. (n.d.). Retrieved April 18, 2016, from http://powermin.nic.in/