More takers for UDAY as utilities show turnaround signs

Assam, Telangana agreed to bail out their power distribution firms under the Ujjwal Discom Assurance Yojna


As on 30 September, 2015, distribution companies had a collective outstanding debt of about Rs3.8 trillion, lower than an earlier estimate of Rs4.3 trillion. Photo: Mint
As on 30 September, 2015, distribution companies had a collective outstanding debt of about Rs3.8 trillion, lower than an earlier estimate of Rs4.3 trillion. Photo: Mint

New Delhi: Assam and Telangana on Wednesday agreed to bail out their power distribution firms under the Ujjwal Discom Assurance Yojna (UDAY), encouraged by the initial success of the power utility turnaround scheme.

Under the scheme, rolled out by the union government in November 2015, the two states will take over three-fourths of their utilities’ outstanding debt before 31 March, 2017.

The scheme enables state governments to bail out their utilities and compel firms to improve efficiency and cut power theft, while the central government rewards the states with priority in allocation of funds for their electrification needs.

Union power minister Piyush Goyal, who was present at the occasion of the two states joining the scheme, launched the UDAY web application that details the efficiency and performance of most power distribution firms in the country.

Goyal promised to offer more incentives for states and utilities that manage to remarkably lower power theft, improve efficiency and become viable. He said another state was expected to adopt UDAY within a few weeks.

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Haryana’s Dakshin Haryana Bijli Vitaran Nigam Ltd was the first power utility to turn around under UDAY. It reported a profit of Rs201 crore in the first half of 2016-17 from a loss of Rs479 crore in the full financial year 2015-16, a power ministry analysis of utilities’ health showed last month.

This has raised hopes that the fortunes of the entire electricity value chain, including coal mining and power generation, will benefit from better electricity demand in the coming days.

The ability of distribution companies, the last link in the value chain, to buy and supply power is crucial for the health of generation companies as well as coal miners, who are battling subdued demand.

Goyal said the Telangana government will take over Rs8,923 crore and the Assam government Rs928 crore, representing three-fourth of respective discom debts as on 30 September 2015.

The efficiency improvement steps included in the scheme and interest cost savings will lead to an overall net benefit of over Rs6,100 crore to Telangana and over Rs1,600 crore to Assam during the turnaround period.

The UDAY app brings all operational parameters of power utilities into the public domain.

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“State governments themselves will upload the details on the application. It will put pressure on distribution firms that lag behind others to catch up,” said power secretary P.K. Pujari, who was present at the occasion.

According to official data, power sector’s share in gross non-performing assets (NPAs) in the banking sector is nearly 6%, compared with 14% for the entire infrastructure sector. Outstanding bank credit to the power sector as on 30 September, 2016, was Rs5.3 trillion.

The central government had in June extended the original deadline for joining the scheme by one year to 31 March, 2017, to allow more states to get on board. Those joining have to take over 75% of the outstanding debt of utilities—the maximum that states are allowed to take over under the scheme. The remaining 25% is to be refinanced through state-guaranteed discom bonds.

As on 30 September, 2015, distribution companies had a collective outstanding debt of about Rs3.8 trillion, lower than an earlier estimate of Rs4.3 trillion.

Out of this, 20 states accounting for Rs3 trillion of discom debt are already part of the turnaround scheme. These states and distribution companies have so far issued Rs1.8 trillion of bonds to refinance the debt burden. Sikkim, Karnataka, Kerala, Tamil Nadu, West Bengal and Odisha are yet to join.

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