New Delhi: State power distribution firms have reported interest cost savings of Rs11,989 crore and sharp reduction of revenue losses—by up to 60% in some cases—under the Ujjwal Discom Assurance Yojna (UDAY) rolled out 17 months ago, according to an analysis of the turnaround scheme for state-run utilities.
Seeing its benefits, Kerala, Tripura and Arunachal Pradesh on Wednesday signed up for the scheme which was approved by the Union cabinet on 5 November 2015.
An official statement issued after a review meeting of UDAY held by power minister Piyush Goyal said Rajasthan, Uttar Pradesh, Haryana and Jharkhand have made significant savings in interest cost. Rajasthan, for example, has saved Rs5,068 crore as interest savings as the state took over Rs60,500 crore of debt incurred by its power utilities. State governments are able to borrow at a lower rate than utilities.
The review showed that Andhra Pradesh Southern Power Distribution Co. Ltd managed to lower the gap between its cost of power supply and revenue realized from consumers by 38% from Rs1.09 to Rs0.68 per kilowatt hour.
Rajasthan’s three distribution companies have lowered this gap from Rs1.68 to Rs0.66 a unit, a reduction of 61%. Haryana utilities managed a 55% reduction in revenue losses. Eliminating operational losses is essential for distribution companies to be able to purchase and serve more power.
The power ministry also said that an overall net benefit of Rs4,178 crore, Rs309 crore and Rs810 crore will accrue to Kerala, Arunachal Pradesh and Tripura respectively under UDAY by way of cheaper funds, reduction in revenue losses and adopting energy efficiency measures.
UDAY’s success is crucial for the long-term fortunes of the electricity sector as distribution firms are the weakest link in the electricity value chain and their poor payment track record adversely affects power generation companies and causes stress in the banking sector. To complement the turnaround scheme for distribution forms, the government has also made coal supplies to power producers more rational, cutting down their transportation cost.
However, reducing operational losses is not enough. To be able to purchase more power and do away with power cuts, distribution companies have to make operational profits. A senior executive from a power sector lender, who asked not to be named, said that after UDAY’s implementation, the delay in paying back dues by distribution companies have come down roughly from six months to two-three months.
Power minister Piyush Goyal called UDAY the most comprehensive power sector reform ever introduced. “We are working with a clear strategy to bring efficiency and accountability in the entire power sector value chain,” the minister said.
According to a presentation by Rural Electrification Corp., so far, bonds worth Rs2.3 trillion have been issued to refinance 85% of the total distribution utility debt to be restructured as on 30 September 2015.