UDAY fails to provide a panacea for ailing discoms

Pratim Ranjan Bose Kolkata | Updated on January 27, 2018


Out of the 21 States under the scheme, operational losses increased in seven: report

More than one year since its launch and 82 per cent of bailout package (bonds) utilised by States; Ujwal DISCOM Assurance Yojana (UDAY) is failing to bring a new dawn for the State-run power distribution sector.

According to a recent report prepared by Motilal Oswal, out of the 21 States that participated in the scheme, operational losses — measured by the difference between the average cost of supply (ACS) and average revenue realised (ARR) — increased in seven States during April-September 2016. The exceptions are Gujarat and Chhattisgarh. While Gujarat discom increased profits, Chhattisgarh earned a positive margin. They were one of the few better managed discoms (along with West Bengal that didn’t participate in UDAY) and continue to remain so.

The gap widened in Haryana, Madhya Pradesh, Punjab, Karnataka, Jharkhand, Bihar and Uttarakhand. Maharashtra is maintaining the small gap as it was. Andhra Pradesh and Rajasthan reduced the gap.

BJP-ruled Jharkhand was the first state to join UDAY, in December 2015. A year later, it is leading the race for accumulating fresh losses with revenue gap increasing from 90 paise/kWh (kilowatt-hour) to ₹2.5/kWh. BusinessLine reported on January 17 about Jharkhand’s non-payment of electricity and coal dues.

Nitish Kumar’s Bihar replaced the positive margin by a gap of 90 paise/kWh. Motilal attributed it to increasing supply to residential sector. Bihar witnessed the highest 12 per cent rise in electricity consumption. The State also tops the chart on AT&C (aggregate technical and commercial) losses at 47.1 per cent, meaning most of the supplies are either pilfered or unpaid.

AT&C losses

Revenue loss can be a function of either high cost of electricity purchase or low tariff. But AT&C loss is a clear measure of the operational efficiency of a discom.

Like the previous two bailout packages in 2001 and 2012, UDAY too insisted on reducing AT&C losses to a respectable 15 per cent. But the figures show discoms utilised funds to clear the balance-sheet without much attempt to improve efficiency.

According to Motilal, AT&C losses have increased by 0.7 per cent to 16.1 per cent in 10 states, including Haryana, Karnataka, Maharashtra, Rajasthan, Andhra Pradesh, Bihar, Punjab, Chhattisgarh, Uttarakhand and MP.

Congress-ruled Uttarakhand records the maximum rise. BJP-ruled Rajasthan — that reduced revenue gap to half, riding on lower interest cost and tariff hike — stands second, with six percentage points rise in AT&C loss.

Since industry and commercial segments pay through the nose for cross-subsidising the rest, there is a limit to increase tariffs.

Economic Survey 2016 pointed out that industrial tariff is “unusually high” in India when compared to rich countries like Australia.

The bottomline is, if there is no improvement in operational efficiency, there will soon be need for another UDAY. India recorded ₹3.8 lakh crore (approximately $56 billion at current exchange) combined loss of discoms in March 2015.

Interestingly, the report identified that over and above the prevailing maladies in the distribution system, “rising share of renewable energy (RE) is increasing the average cost of supply, as it is displacing consumption of low-cost coal.”

The share of RE in generation increased from 5.8 per cent to 7 per cent during April-November 2016.

Published on February 05, 2017

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