21 states to join UDAY by March

Target-linked MoU designed, no benefits if discoms default

The Centre is hopeful of getting at least 21 states on board for Ujwal Discom Assurance Yojana (UDAY) reforms for state-owned power distribution companies before March 2016. The states that are ready to join in have also indicated that their fiscal strength would not take any major hit after UDAY is implemented, according to power ministry officials.

For the states that sign up for UDAY, one of the first steps is to take over 75 per cent of discom debt as on September 30, 2015 over two years - 50 per cent in 2015-16 and 25 per cent in 2016-17.

Power ministry officials said the state borrowing would be issued as non-statutory liquidity ratio state development loans. "The Centre and states are confident that these bonds would incite interest from pension funds, Life Insurance Corporation, public sector banks, and financial institutions," said the official.

With loans being part of the capital expenditure in the state's Budget, the Centre is hopeful of bringing down interest rates further.

This comes amidst reports that the combined Centre-state fiscal deficit limit for 2015-16 could breach the level mandated by the Fiscal Responsibility & Budget Management Act.

Till now, 12 states have given in-principle approval to join UDAY. These are Uttar Pradesh, Andhra Pradesh, Jharkhand, Punjab, Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Rajasthan, Gujarat, Haryana, Madhya Pradesh and Chhattisgarh.

These states will sign a tripartite agreement with the Union ministry of power and discoms. Power ministry officials said the parameters of the agreement have been finalised with strict monitoring clause. The MoU lists out a slew of baits for the discoms if they meet the required operational efficiency. The parameters are divided into three parts: financial, operational and monthly monitoring.

CENTRE'S CARROT & STICK POLICY

THE BAIT

• Waiving unpaid overdue interest payment of discoms
• Additional grant under Centre-sponsored schemes
• Increased supply of domestic coal
• Faster completion of intrastate transmission lines

THE SWITCH

• No future lending by PSU banks and FIs
• No rationalised coal linkage
• No additional grants or rewards from Centre