July 26, 2017

UDAY scheme impact: State-run power discoms cut losses by 21.5% in FY17

Combined losses of state-run power utilities in 26 states and the Union territory of Puducherry in 2016-17 fell 21.5% from a year ago to Rs40,295 crore on account of efforts under Ujwal Discom Assurance Yojana (UDAY), the turnaround scheme aimed at improving operational and bill collection efficiency.

A central government official aware of the performance of state utilities said on condition of anonymity that power utilities in some states have managed to cut down their losses significantly. Utilities in Rajasthan, for example, reduced losses by 54% in 2016-17 to Rs5,208 crore from a year ago. Those in Tamil Nadu lowered losses by 35% to Rs3,783 crore in the same period, while those in Uttar Pradesh cut losses by 14% to Rs6,619 crore.

The reduction in losses is on account of increased bill payment compliance by consumers including by way of reduction in power theft and tight monitoring of the utilities’ operations by state governments which took over three-fourths of their accumulated debt under UDAY scheme, approved by the cabinet in November 2015.

The UDAY scheme allowed state governments to take over half the outstanding debt of utilities in 2015-16 and another 25% in 2016-17. The remaining was to be refinanced by the distribution companies through state-guaranteed bonds, which would help them reduce interest cost.

Power distribution remains the weakest link in the energy value chain, which has an impact on the financial health of power generation companies as well as on Coal India Ltd, the state monopoly supplying fuel to power plants. Losses constrain distribution firms from expanding their network to cater to the unmet demand. State governments have tried various options to turn around this segment including privatization and adopting a franchisee model to bring in efficiency.

Many conventional thermal power generation companies are now left with plants which are not viable as demand from distribution firms remains sub-optimal amid competition from renewable power.

The woes of generation companies are compounded by the fact that industrial consumers, bogged down by the cross-subsidy burden meant to benefit household consumers, are relying more on solar power which is available at a cheaper tariff than those for industries.
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Federal policy think tank NITI Aayog last month recommended in a draft energy policy that power utilities should be allowed to realize full market price from all consumers by doing away with cross-subsidy provided to poor consumers. “With nearly 304 million Indians without access to electricity, and about 500 million people still dependent on solid bio-mass for cooking, it may be acknowledged that the country has still a long way to go on securing its energy security objective,” the document stated.

It also projected that India’s power demand will go up more than four-fold by 2040 on account of strong economic growth. At present, it is about 1.1 trillion units.


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