Discoms to benefit from UDAY in near to medium term: ICRA

Strict focus on improving efficiency, timeliness and tariff hike adequacy will be critical for their financial turnaround in the long-run, added report

Don't want to miss the best from Business Standard?

The Centre's flagship Uday scheme will benefit power distribution companies significantly in the near to medium-term, but strict focus on improving efficiency, timeliness and tariff hike adequacy will be critical for their financial turnaround in the long-run, says an ICRA report.

"Discoms are going to benefit significantly in the near to medium term from measures taken under UDAY. These include lower interest costs arising out of de-leveraging, and reduction in cost of power procurement arising out of improved domestic coal availability along with recent policy measures," ICRA Senior Vice President Sabyasachi Majumdar said in a statement.

"...Such as flexible utilisation of domestic coal linkage and e-auction process for short-term power," Majumdar added.

However, serious focus of utilities on improving their efficiency levels - mainly aggregate technical and commercial loss levels - in line with stipulated targets as well as timeliness and adequacy of tariff hike in relation to power supply cost - including periodic pass-through of fuel & power purchase cost - remains critical in the long-run for sustained improvement in the financial position of the discoms, he said.

16 states/UTs have signed MoUs to join the Centre's UDAY scheme meant for revival of debt-stressed power distribution companies, the statement said.

The de-leveraging and refinancing for state-owned discoms under UDAY scheme is expected to improve their liquidity and profitability profile in the near-term.

Further, improved domestic coal availability along with recent policy measures by the government such as flexible utilisation of domestic coal linkage and e-auction process for short term power remain favourable for discoms in terms of likely reduction in cost of power purchase, the statement added.