UDAY scheme’s progress shows few hits, many misses

In November 2015, the government launched an ambitious scheme, Ujwal Discom Assurance Yojana (UDAY), to improve the financial health and operational efficiency of India’s debt-ridden power distribution companies (discoms). Three years on, the scheme may be failing to meet the desired objectives, research by Amandeep Kaur and Lekha Chakraborty of the National Institute of Public Finance and Policy shows.

Under UDAY, discoms can convert their debt into state government bonds, but are required to fulfil certain conditions.

One such condition is to reduce the average aggregate technical and commercial (AT&C) losses to 15% by 2018-19. However, Kaur and Chakroborty use state-specific data from the UDAY portal to show that, at present, AT&C losses stand at 25.41% on an average.

Of the 24 participating states, which have reported data on aggregate technical and commercial losses, only seven—Himachal Pradesh, Andhra Pradesh, Goa, Gujarat, Kerala, Telangana, and Tamil Nadu—have losses below 15%.

UDAY also requires discoms to maintain commercial sustainability, and bring down the gap between average cost of supply (ACS) and average revenue realized (ARR) to zero.

However, this gap has widened in several states, including Jharkhand, Punjab Goa, Manipur, and Jammu and Kashmir.

The authors also find several operational inefficiencies, which have hurt the performance of discoms.

For instance, across several states, there is a lack of effective billing procedures, poor measurement of power consumption, and ineffective monitoring of power theft.

According to the authors, the aggregate measures on UDAY’s performance are boosted by a handful of high-performing states.

In fact, Gujarat, Karnataka, Himachal Pradesh and Telangana are the only states that have performed well on most financial and operational parameters of the scheme. Beyond these success stories, their analysis of individual states raises serious questions on the efficacy of the UDAY scheme to turnaround the power sector.

Also read: UDAY Power Debt in Retrospect and Prospects: Analysing the Efficiency Parameters (bit.ly/2zMaPyi)