Power discom reform: Trickle begins in UDAY benefits

States begin looking at interest cost savings; slow pace in operational efficiency improvement

The power distribution reforms scheme, Ujwal Discoms Assurance Yojana (UDAY), is improving, slowly, the financials of distribution companies (discoms).

States which have initiated financial restructuring by issuing bonds against the discoms' debt are looking at estimated yearly interest saving of a combined Rs 7,255 crore.

Of the 22 states which have joined UDAY, 15 have issued bonds against the debt they took over of the discoms as part of the restructuring. The total amount of bond issuance is Rs 2.7 lakh crore. Of this, Rs 1.83 lakh crore is by the states and the balance by the discoms.

For the states that agreed to implement UDAY, one of the first steps was 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. These states would then issue bonds in the market to capitalise on this. The 25 per cent of debt remaining with the discoms had bonds issued separately by the latter, with sovereign guarantee.

In a later Cabinet decision, those which joined later were allowed to issue bonds against 50 per cent of the debt last year and carry forward 25 per cent to 2017-18.

Union power ministry officials say interest rates for the bonds issued by the states are in range of 7.04-8.68 per cent. The bonds by discoms had an interest rate of 9.75 per cent.

"This is significantly contributing in the reduction of discoms' interest cost," said an official.

For Rajasthan, the interest burden is expected to come down to 4,738 crore in FY17 from Rs 9,435 crore in FY16. Punjab is looking at interest saving of Rs 160 crore and Haryana of Rs 765 crore. Among the debt-ridden discoms, Rajasthan has the lion's share of Rs 80,000 crore, followed by Uttar Pradesh, Haryana, Madhya Pradesh and Punjab.

By the UDAY pact, debt takeover by states during the first year of implementation would not be part of the counting of their allowable fiscal limit.

The scheme envisages a slew of measures to improve operational efficiency. A major target is to reduce s being reducing aggregate technical and commercial (AT&C) losses from current levels to 15 per cent by 2019. Also, improving collection and billing efficiency, considerably reducing energy theft, and reducing the gap between the Average Revenue Realised (ARR) and Average Cost of Supply (ACS) of the discoms. The scheme underlines the need for regular revision of rates, while keeping power prices affordable. Once signed, the states will also enjoy rationalised coal supply and central finance assistance.

The discoms/states have completed metering of 11 kva urban feeders and more than 80 per cent of the work of metering in rural feeders, said an official, adding this would help in proper energy auditing. AT&C losses continue to be high for several states; a few have shown slight improvement. The difference between ACS per unit of power and in ARR of the discoms is reducing at a slow pace.