What is UDAY (Ujwal DISCOM Assurance Yojana)?

What is UDAY?

Ujwal DISCOM Assurance Yojana (UDAY) is a financial restructuring and efficiency enhancing programme, aims to reduce the debt burden of the state owned electricity distribution companies (DISCOMs). DISCOMs - most of them are owned by state governments have an accumulated losses of approximately Rs. 3.8 lakh crore and outstanding debt of approximately Rs. 4.3 lakh crore (as on March, 2015).

Though the main component of UDAY is debt management, other measures like raising operational efficiency are also proposed to permanently settle the debt scenario of DISCOMs.

The scheme urges DISCOMs to break even in the next 2-3 years.

Four initiatives are designed as part of UDAY to improve the efficiency of DISCOMs: (i) Improving operational efficiencies of DISCOMs; (ii) Reduction of cost of power; (iii) Reduction in interest cost of DISCOMs; (iv) Enforcing financial discipline on DISCOMs through alignment with State finances. The operational efficiency includes compulsory smart metering, upgradation of transformers and meters to reduce electricity lost during transmission and distribution (or theft).

How it works?

The programme was launched by Ministry of Power, Government of India. Under UDAY, state governments, who own discoms, can take over 75 percent of their debt and pay back lenders by selling bonds. The remaining 25 percent debt will be financed by bonds issued by DISCOM. Several incentives for the state electricity boards are envisaged under the scheme once they join UDAY.

What is the participation of central government for the debt restructuring of DISCOMs?

The central government will ease rules to encourage states participating in the scheme to borrow more and help with the additional burden.

What are DICOMs and why they are in debt?

DISCOMs or distribution companies are mostly formed by state electricity boards for electricity distribution. It is separated from other power utilities like electricity generators. Their dedicated service is distribution of electricity.

Debts of the DISCOMs are not a recent issue. Historically, the state electricity boards are known for their high level of debt. In the past, centre has made many efforts to strengthen the SEBs (State Electricity Boards).

States’ power sector is one of the most indebted sectors in the country. It is estimated that their borrowings amounts to nearly 5% of the GDP. Most of the debt is attributed to distribution entities of the state electricity boards called as Distribution Companies or DISCOMs. Of the total debts of the SEBs, DISCOMs are responsible for the largest share of this debt (36 percent in 2011), followed by generation companies, including independent power producers. Many DISCOMs have relied on short-term loans to meet operating expenses in recent years. High transmission and distribution losses are attributed to be the reasons for the loss of DISCOMs. Some DISCOMs reports 25% of their electricity lost during transmission and distribution.

Salient features of UDAY

Following are the salient features of UDAY

  • States shall takeover 75% of DISCOM debt as on 30 September 2015 over two years - by 2016-17.
  • Centre will not include the debt taken over by the States as part of fiscal deficit of respective States.
  • States will issue non-SLR including SDL bonds in the market or directly to the respective banks / Financial Institutions (FIs) holding the DISCOM debt to the appropriate extent.
  • DISCOM debt not taken over by the State shall be converted by the Banks / FIs into loans or bonds with interest rate not more than the bank’s base rate plus 0.1%. Alternately, this debt may be fully or partly issued by the DISCOM as State guaranteed DISCOM bonds at the prevailing market rates which shall be equal to or less than bank base rate plus 0.1%.
  • States shall take over the future losses of DISCOMs in a graded manner and shall fund them as follows:
  • State DISCOMs will comply with the Renewable Purchase Obligation (RPO) with Ministry of Power.
  • States accepting UDAY and performing as per operational milestones will be given additional / priority funding through Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY),Integrated Power Development Scheme (IPDS), Power Sector Development Fund (PSDF) or other such schemes of Ministry of Power and Ministry of New and Renewable Energy.
  • Such States shall also be supported with additional coal at notified prices and, in case of availability through higher capacity utilization, low cost power from NTPC and other Central Public Sector Undertakings (CPSUs).
  • States not meeting operational milestones will be liable to forfeit their claim on IPDS and DDUGJY grants.
  • UDAY is optional for all States. However, States are encouraged to take the benefit at the earliest as benefits are dependent on the performance.

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