New Delhi: The government scheme to restructure the debt of state power utilities—Ujwal Discom Assurance Yojana or UDAY—is not just limited to a simple loan rejig, but aims at a turnaround of the distressed entities by putting the greater onus on state governments, shows the fine print of UDAY agreements signed between the centre and nine states and their power utilities.
The copies of the agreements were released by the Union power ministry on 17 March. The states that have signed the agreements are Bihar, Chhattisgarh, Gujarat, Haryana, Jammu and Kashmir, Jharkhand, Punjab, Rajasthan and Uttar Pradesh.
Uttarakhand became the 10th state to join the UDAY scheme on 1 April.
The agreements call for naming and shaming defaulters, rewarding and penalizing officials based on bill collection performance and committing state governments to fund as much as half of the future losses of power distributors.
“Distributors will increase power supply in areas that report reduction in technical and commercial losses… undertake name and shame campaign to control power theft… link performance of each officer in charge with achievements to attract incentive or penalty,” says the agreement.
As per the UDAY agreements, power distributors and states have to take steps to cut technical and commercial losses due to power theft and non-collection of billed units. Such losses are as high as 35% of the total units supplied in Jharkhand and 32% in Uttar Pradesh.
The documents also say that banks will not levy any pre-payment penalty for the debt restructuring and will waive any penal interests for dues owed by utilities since 1 October 2013.
The states that have signed the UDAY agreement will have to fund 50% of the previous financial year’s loss of their power suppliers from 2020-21 onwards. Such funding from state budgets will start at 5% (of previous year’s losses) in 2017-18 and will go up to 10% in 2018-19, 25% in 2019-20 and 50% in 2020-21, the agreements say.
The move tacitly links the turnaround to the political will of the state governments. It will encourage state finance departments to not only oversee how the power suppliers manage their business but also take proactive steps to cut power theft and improve bill collection efficiency, said a central government official, who did not want to be named.
Also, such agreements will put a check on populist measures such as free power as the cost will eventually come back to the taxpayer with interest.
“State governments have to fund the transition period losses, as performance improvement and tariff rationalization cannot be done overnight. By making an upfront commitment to fund future losses of distribution companies through their budgets, the state governments and legislators have a responsibility and opportunity to collectively decide on the actions. These actions could be for internal reorganization, tariff hikes or private participation,” said Kameswara Rao, leader of the energy, utilities and mining practice at consultancy firm PricewaterhouseCoopers (PwC) India.
UDAY was approved by the Union cabinet on 5 November to let states take over three-fourth of the accumulated Rs.4.3 trillion debt of public sector power suppliers in two years.
The utilities will refinance the remaining quarter of loan liabilities with fresh discom debt guaranteed by the state. In 2015-16, eight states raised close to Rs.1 trillion of UDAY bonds to retire power suppliers’ debt.
UDAY not only resolves the past mess in the sector that he inherited, but also sets a strong deterrent against power distributors slipping back to losses in the future, power minister Piyush Goyal had said in an interview to Mint on 15 March.
Rao of PwC said making states fund future losses of power suppliers straight from their budgets will improve transparency.
“It will improve disclosure of the power sector losses as they often remain hidden as disallowed costs or unpaid subsidy. The state finance departments will now have to take a view on discom losses. But whether this will drive any concrete action to improve efficiency and turnaround discoms remains to be seen,” said Rao.
Source: Mint; 05 April 2016