Jharkhand’s default raises questions over UDAY impact

When it was launched in November 2015, the Ujwal Discom Assurance Yojana (UDAY) was touted as a scheme that would nurse State-owned power distribution companies back to health. Now, however, doubts are rising about whether States are using the scheme as another window to pile up fresh debt.

Jharkhand, the first state to sign up for the UDAY scheme, is a case in point. On December 6, 2015, Union Power Minister Piyush Goyal thanked the BJP-ruled State for taking the lead, tweeting: “24x7 power is not far.”

The State raised a loan and cleared historic dues of ₹5,553 crore, accumulated between 2001 and September 2015 — paying ₹4,770 crore to statutory generation utility Damodar Valley Corporation (DVC) and ₹783 crore to Coal India.

A year later, however, Jharkhand has piled up ₹1,300 crore in fresh dues to DVC and ₹32 crore to Coal India. It has simply stopped paying dues to DVC for the purchase of roughly 700 MW a day. Repeated efforts to seek clarifications from Jharkhand Chief Secretary Raj Bala Verma and Additional Chief Secretary – Energy RK Srivastava were unsuccessful.

Same old story

UDAY is the third debt-restructuring programme introduced to help discoms. The first was in 2001 and another one followed in 2012.

While launching UDAY, the Centre had said that discoms were trapped in a vicious cycle, with operational losses being funded by debt. “Outstanding 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,” it had said in a November 2015 release.

The Central government had claimed that UDAY would be a “permanent resolution of past as well as potential future issues of the sector.” So far, 90 per cent of the States have joined the scheme, the last being Tamil Nadu, a State that had an aggregate debt of ₹75,000 crore.

Under UDAY, State governments and their discoms entered into a tripartite agreement with the Union Power Ministry to turn around discoms.

The States would commit to reduce aggregate technical and commercial losses. Discoms would be allowed to revise tariffs quarterly to offset fuel price increases, if any.

State governments would take over 75 per cent of the total outstanding discom debt as on September 30, 2015 by the end of fiscal year 2017 and issue bonds. Discoms would use the funds raised through these bonds to discharge three-fourths of their outstanding debt.

Sector experts confirm that UDAY will improve the affordability of discoms in the short and medium term. However, they are apprehensive if this will bring any long-term solution as States have always found a way to pile up dues.

“Increasing efficiency of discoms is a purely management issue. I don’t see any structural reform in UDAY that will make discoms more efficient in the long term,” a senior executive at a prominent private utility told BusinessLine .

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