Spiralling dues by Discoms to Gencos erode the power of UDAY

The delays faced by most States in achieving financial and operational goals under the much-touted Ujwal Discom Assurance Yojana (UDAY), launched in 2015, are raising niggling questions on the efficacy of the scheme.

An analysis of data from the Power Ministry reveals that overdues by State power distribution companies (Discoms) to power generators (Gencos) have been rising, indicative of the dismal performance of Discoms in most States.

At the end of February 2019, of the total outstanding amount of ₹41,707 crore owed by Discoms to Gencos, more than half was overdue. This implies that ₹27,466 crore of dues have not been settled within the mandated credit period.

States such as Rajasthan, Madhya Pradesh, Andhra Pradesh, Karnataka, Tamil Nadu and Maharashtra had overdues of 60-70 per cent (as a proportion of their overall outstanding amount) as of February 2019.

Sombre performance

The financial performance of most States under UDAY is well below the targets agreed upon by the Discoms.

The targets set out in UDAY — reduction in aggregate technical and commercial (AT&C) losses, reduction in the gap between the average cost of supply (ACS) per unit of power and per unit average revenue realised (ARR), and tariff revisions by Discoms — have not been met.

UDAY required States to reduce their AT&C losses to 15 per cent by March 2019. However, the AT&C losses-average for all States as of February stood at 19.97 per cent.

Data relating to 25 States available on the UDAY portal shows that only seven had AT&C losses below 15 per cent.

The losses of 17 States had breached the 20 per cent mark.

Under UDAY, States were also supposed to reduce the gap between ACS and ARR to nil by March 2019. The overall ACS and ARR gap as of February was still hovering around ₹0.35/unit of electricity sold.

The financial losses at State Discoms have come down from the pre-UDAY period, but the gap between ARR and ACS per unit persists, says Sabyasachi Majumdar, Senior Vice-President and Group Head of Corporate Ratings at ICRA Ltd. This has led to high overdues to banks and power generating companies by Discoms.

Power tariff revisions, as envisioned under UDAY, have also not been implemented by the States.

Few tariff revisions

“When the regulator is approached for a tariff-hike approval at the start of the year, there is a certain budget,” says Majumdar. “Typically, there is a subsidy that is assured from the government.”

Based on how much power will be purchased, and the allocation of power to industrial, agricultural, commercial and household consumers, the regulator grants a tariff hike, he adds. “Now the idea is that with the tariff hike and the subsidy amount, the Discoms should be able to make up for the gap between the cost of supply and sales realisation.”

This, however, hasn’t come to pass.

Delayed collections

“Their (Discoms) collection is also impacted by delayed payments from State government departments and (delayed) subsidy receipt,” says Devika Malik, Senior Analyst at India Ratings & Research. “Some States have made improvements, but others’ progress on smart metering, feeder segregation etc is not in sync with their MoUs.”

States had to sign a memorandum of understanding with the Centre under UDAY to meet certain targets. Apart from financial parameters, there were several operational efficiency indicators also to be monitored, such as feeder metering, smart metering and feeder segregation.

“In future, they (State Discoms) will go to the regulator, or to the government, to either ask for tariff compensation or increased subsidy,” Majumdar says. “Those gaps may be made good, but with a certain lag. Until then, higher dues to power generators and banks will persist.”

A November 2018 study by the National Institute of Public Finance and Policy on the efficacy of UDAY says the failure to achieve the financial and operation parameters could derail the turnaround of the power sector through the scheme.

The study points out that many States have not been able to meet the commitment of raising tariffs due to political compulsions. The ACC-ARR gap will persist if there is a delay in tariff hikes.

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