‘Under UDAY 2.0, sops for Discoms will be target-driven’

Twesh Mishra New Delhi | Updated on July 07, 2019 Published on July 07, 2019


The next leg of power distribution reforms will be led by the Ujwal Discom Assurance Yojana 2.0 and a tariff policy that aims to rein in errant distribution utilities. Unlike its predecessor, UDAY 2.0 will be stricter with budgetary allocation to incentivise Discoms for good performance, Minister of State (Independent Charge) for Power and Renewable Energy, RK Singh told BusinessLine. Excerpts:

The Finance Minister has said the next leg of power distribution company reforms is in the offing after a review of UDAY. How should one interpret this?

The Finance Minister said that we will roll out a scheme that will be different from the earlier ones. It will combine UDAY with the development funds for strengthening the power distribution system. Because the two are combined, the infusion of funds for strengthening the system will be linked to achievement of milestones under UDAY 2.

This was envisaged in UDAY I too. There were specific conditions under which the distribution utility-Discom would have access to funds only if it met the UDAY milestones. However, they were not implemented because there were multiple schemes. Now, we are combining it all into one scheme; so now, those conditions will be central.

If the glide path says that you have to reduce your AT&C (Aggregate Technical & Commercial) losses from let’s say, 18 per cent to 17.5 per cent, then the next tranche of funds for strengthening will be released only after the target is attained.

UDAY I did not have a budgetary allocation. Will there be a budgetary allocation for UDAY II?

Yes we are combining the two. I won’t pre-empt those who are drafting the scheme but we’ll be giving funds for whatever strengthening is necessary to make available supplies 24x7 and reduce losses.

When is the new tariff policy expected? What will be the biggest issue that the tariff policy is going to address?

The tariff policy will be approved within a month. I think this is the first time that we are putting the consumer at the forefront. The consumer has a right to uninterrupted and quality supply of power. So, if the Discom does load-shedding, it will have to pay a penalty. The consumer has the right to a certain standard of service, so that will be laid down. If the Discom does not match up to those standards, it will have to pay a penalty.

We are saying that the Discom will have to tie up sufficient power to serve the area it has the licence or monopoly to serve. If they don’t tie up sufficient power, they will not have the licence to serve that area, or we will get other institutions to meet those requirements.

We are also saying that the Discom cannot overcharge the consumer. So if cost of power is ‘x’, the Discom cannot charge a consumer ‘4x’. The tariff charged has to bear a relation with the cost which is paid for the power. The Discom cannot pass on the burden of inefficiencies on to the consumer. So if the Discom is making a loss of 19 per cent, it cannot hike the tariff.

We have laid down a fairly generous ceiling saying that the Discom cannot pass on any loss above 15 per cent. Even that is a high number, but we are keeping it to begin with and will gradually bring it down too. So the Discom will have to improve its efficiencies.

We are bringing in competition so we are making ‘open access’ easier. So if the Discom actually over-prices power, then people will get power from some other generator through open access. So this tariff policy will bring about a seminal change in the power system of the country.

How will the newly proposed payment security mechanism work? Who will issue the Letter of Credit?

The Letters of Credits (LoCs) are issued by the banks and financial institutions. For a LoC, you have to deposit a certain margin that will be given by the Discoms.

That is an essential requirement from August 1. The LoC can be for a supply period of 10 days, instead of a month, and then it can be rolled over. So you take a supply for 10 days, give a fresh LoC for another 10 days. So it is doable.

A Discom that regularly clears dues to Gencos will have to pay lesser for an LoC. A Discom that does not clear dues will have to shell out more.

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Published on July 07, 2019
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