UDAY, which means sunrise, is the Centre’s scheme to rescue the country’s ailing state power distribution utilities (discoms). And it is supposed to be nothing short of a new dawn for them — the books of the State discoms are to be purged of their massive losses and mounting debt, paving the way for them to be operationally viable.

So far, 17 States have agreed to join the scheme. Rajasthan recently became the first state to issue UDAY bonds.

What is it?

UDAY or Ujwal Discom Assurance Yojna was launched in November 2015 to help loss-making discoms turn around financially, with support from their State governments. But before we go into details, here’s some background. For many decades, State discoms have been supplying electricity at tariffs that are far below cost. For obvious political reasons, States have been wary of revising power tariffs in line with rising costs. Inefficiencies in power distribution such as large transmission and distribution losses on power, have further strained the finances of the discoms, who have been borrowing heavily from banks to keep themselves running. Ergo, the loss-making discoms have piled up a massive load of debt on their books; it totalled ₹4.8 trillion in September 2015.

Under the scheme, States will take over three-fourths of the debt of their respective discoms. The governments will then issue ‘UDAY bonds’ to banks and other financial institutions to raise money to pay off the banks. The remaining 25 per cent of the discom debt will be dealt within one of the two ways — conversion into lower interest rate loans by the lending banks or be funded by money raised through discom bonds backed by State guarantee. Backing from the State will help bring down the interest rate for the discoms.

In return for the bailout, the discoms have been given target dates (2017 to 2019) by which they will have to meet efficiency parameters such as reduction in power lost through transmission, theft and faulty metering, installing smart meters and implementing GIS (geographic information system) mapping of loss making areas. States will also have to ensure that power tariffs are revised regularly.

Why is it important?

UDAY aims at reforming the power sector. The discoms’ poor finances are constraining their electricity purchases, which in turn is forcing generation companies to idle their plants. Reliable, reasonably priced and sustainable power supply is critical for economic growth. The power sector’s debt woes have also exposed the banking sector to risks. With this debt now being taken over by the States, banks can be assured of timely repayment.

Why do I care?

Today, many States have enough power generation capacity to meet consumer demand, but their users still face blackouts because of the discoms’ shaky financial position. If power cuts are making your life hell, then UDAY is your hope that power supply can be stepped up. The crackdown on power theft is also good news for law-abiding consumers.

However, as mending discom finances will require the tariffs in States such as Karnataka, West Bengal and Madhya Pradesh to be hiked, don’t expect better efficiency to reduce your tariffs immediately.

The bottomline

Brace for higher power tariffs, but fewer blackouts.

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