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A rescue package for ailing electricity utilities, called ‘Ujwal DISCOM Assurance Yojna’ or UDAY, was approved by the Cabinet on Thursday. The scheme stipulates passing on discom debts in their entirety to the respective States over two years.
Under the scheme, States will take over 75 per cent of the debt as on September 30, over two years — 50 per cent in 2015-16 and 25 per cent in 2016-17.
Ensuring that the Centre’s finances are not impacted, the scheme stipulates that the debt taken over by the States will not be included by the Centre when calculating the fiscal deficit of respective States in fiscal years 2015-16 and 2016-17.
To take over the debt, the States will issue non-SLR (statutory liquidity ratio) bonds either in the market or directly to the bank/financial institution (FI).
The discom debt not taken over by the State would be converted by the banks/FIs into loans or bonds bearing an interest rate not more than the bank’s base rate plus 0.1 per cent. Or, this debt may be fully or partly issued by the utilities as State guaranteed discom bonds, at market rates.
The package also involves States taking over the future losses of discoms in a graded manner and funding them from 2017-18 (5 per cent of the loss of 2016-17); 2018-19 (10 per cent of the loss of 2017-18); 2019-20; (25 per cent of the loss of 2018-19); 2020-21 (50 per cent of the 2019-20 loss).
The discoms will break-even through four initiatives — improving operational efficiencies; reduction in power cost; reduction in interest cost; and enforcing financial discipline through alignment with State finances.
Discoms had accumulated losses of approximately ₹3.8-lakh crore and debt of nearly ₹4.3-lakh crore as of March 2015.
Power producers and bankers are waiting for the fineprint before they react to Power and Coal Minister Piyush Goyal’s package.
State discoms will comply with the Renewable Purchase Obligation outstanding since April 2012, within a period to be decided in consultation with the Power Ministry. Goyal said, “Due to legacy issues, discoms are trapped in a vicious cycle with operational losses being funded by debt. The debt of discoms has increased from about ₹2.4-lakh crore in 2011-12 to about ₹4.3-lakh crore in 2014-15, with interest rates up to 14-15 per cent.”
The success of this scheme will largely depend on the States’ willingness to adopt it. Goyal said the scheme also gives enough incentives to States to adopt it. Those accepting it will be given additional/priority funding through Deendayal Upadhyaya Gram Jyoti Yojana, Integrated Power Development Scheme, Power Sector Development Fund or such other schemes of the Ministries of Power and New and Renewable Energy.
Such States shall also be supported with additional coal at notified prices and, in the case of availability through higher capacity utilisation, low-cost power from NTPC and other Central PSUs. States not meeting operational milestones will be liable to forfeit their claim on such grants.
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