A glimmer of hope

UDAY does well, but needs to step up work in laggard states

There is emerging evidence that the Ministry of Power’s Ujwal Discom Assurance Yojana or UDAY has started to yield results. Ever since its launch in November 2015, UDAY has been tracked with extreme interest by policy observers as the scheme was attempting to do what two previous governments — in September 2003 and September 2012 — had failed to do. The central purpose of UDAY is to improve the financial health of state-owned power distribution companies. This goal is supposed to be achieved by improving operational performance, in particular by reducing the aggregate transmission and commercial (AT&C) losses, and bridging the gap between the average cost of supply (ACS) and average revenue realisation (ARR) of discoms. The latter was pegged at Rs 4 lakh crore in March-end 2015 and the AT&C losses were at 23 per cent as of 2014 — both necessitating urgent financial restructuring. According to the Union government-owned Power Finance Corporation, under UDAY, power purchase cost, AT&C losses and interest cost have all started decreasing, resulting in a 40 per cent reduction in the revenue-cost gap under the National Democratic Alliance government. The data also indicates that the average AT&C losses have come down to 20 per cent in 2017 from 23 per cent in 2014. And as many as 18 of the 26 states in the country have shown a marginal improvement in their performance.

But it is also a fact that states have a lot of ground to cover to meet the 15 per cent target by 2019. Also, there are still eight states, including Chhattisgarh, Bihar, Uttar Pradesh, Rajasthan, Haryana, and Jammu & Kashmir, where the situation has not shown much improvement. In fact, the AT&C losses have actually grown after these states joined the debt-restructuring scheme. Besides the AT&C losses, even the difference between the power procurement cost and the selling price has gone up. In states such as Uttar Pradesh, Rajasthan, Punjab, Haryana, Jharkhand, and Tamil Nadu this gap between the ACS and ARR ranges from 0.26 to 2.55. Despite this slippage, the average ACS-ARR gap was reduced to 0.46 in 2017 from 0.76 three years ago. Unless these laggard states show a sustainable improvement in the financials of their discoms, UDAY may find it difficult to achieve its final goal at the national level. 

To be sure, there are many reasons why the Bharatiya Janata Party-led government must persist with UDAY given the initial results. For one, of the eight laggard states in question, six are ruled by the BJP itself. This implies that policy transmission can be shored up far more quickly as the Centre and state governments may not work at cross-purposes. The other important thing to note is that 17 of the 26 states joined UDAY in the last financial year. As such, these are still early days for the policy to show results and it can be expected that the struggling discoms will soon get on with the agenda for reform. Lastly, much improvement can happen after the Centre and states share notes on what works and what does not. For instance, better awareness of the measures that have yielded results, such as prepaid meters, spot-billing and public-private-partnership, can be replicated in different states to raise efficiency.