Ujwal DISCOM Assurance Yojana (UDAY): Objectives and Challenges
05-08-2023
1 min read
What’s in today’s article?
- Why in News?
- What is the UDAY Scheme?
- Need for UDAY Scheme
- Key Objectives of the UDAY Scheme
- Achievements of UDAY Scheme
- Challenges faced by the UDAY Scheme
- News Summary Regarding CAG’s Report
Why in News?
- The Comptroller and Auditor General of India (CAG) recently presented its Compliance Audit report (for the year ended March 2021) to assess the implementation of the Ujwal DISCOM Assurance Yojana (UDAY) scheme.
- According to the CAG, the main objective of the financial and operational turnaround of the Maharashtra State Electricity Distribution Company (MSEDCL) was not achieved in spite of implementing the UDAY scheme.
What is the UDAY Scheme?
- In 2015, the Government of India (Ministry of Power) launched UDAY Scheme to aid operational and financial turnaround of Power Distribution Companies (DISCOMs) owned by any state.
- UDAY is basically a debt restructuring plan for DISCOMs (to improve their operational efficiency) and was kept optional for states.
- Joining states to undertake 75% debts of their respective DISCOMs, while the remaining 25% debts will be issued to DISCOMs in the form of bonds.
- These states will receive additional priority funding under numerous schemes such as Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power Development Scheme (IPDS).
- This scheme was established with a vision to provide affordable and accessible 24×7 power to all.
- It also aims to provide a solution for revenue-side efficiency and cost-side efficiency and envisages reform measures in the following sectors - generation, transmission, distribution, coal and energy efficiency.
- Initially, the scheme was targeted for four years until 2019, providing a revival package for electricity distribution companies.
- However, after understanding the impact and prospect of this scheme, the government launched ‘UDAY 2.0’ under the Union Budget 2020-21.
Need for UDAY Scheme
- In India, DISCOMs have been accumulating losses and are under outstanding debt, as these utilities are supplying electricity at tariffs that are far below cost.
- These financially-stressed DISCOMs are not able to supply adequate power at affordable rates, hampering the quality of life and overall economic growth and development.
- Inefficiencies in power distribution, such as large transmission and distribution losses on power, have further strained finances of DISCOMs, who have been heavily borrowing from banks to operate themselves.
- Owing to DISCOMs massive pile of debts and accumulated losses [~Rs. 2.75 lakh crore from 2011-12 to 2014-15], the government decided to develop a financial scheme to aid these DISCOMs and reduce their transmission losses.
Key Objectives of the UDAY Scheme
- Reduce the aggregate technical & commercial (AT&C) loss (from ~22% to 15%) by 2018-19.
- Improve operational efficiency via ensuring compulsory smart metering, upgrading transformers and meters.
- Adopt energy efficiency measures such as initiate promotion of energy-efficient LED bulbs, etc.
- Reduce power costs, interest burden and power losses in the distribution sector.
- Encourage states to actively participate in the scheme by providing incentives to the performing state.
- In addition, the following advantages will be provided:
- Increased supply of domestic coal
- Rationalisation of coal prices
- Faster completion of interstate transmission lines
- Power purchase through transparent competitive bidding, etc.
Achievements of UDAY Scheme
- Large number of states joined the scheme. This led to the improvements in the liquidity situation of DISCOMs and in the power supply situation.
- The participating states have achieved an improvement in AT&C or distribution losses.
Challenges faced by the UDAY Scheme
- AT&C losses are still high: For example, some states have losses of over 40% and only 7 states (TN, Kerala, Gujarat, etc.) have recorded losses of less than 15%.
- Rising share of renewable energy (RE): As the rising share of RE is displacing the low-cost coal in the distribution system, it raises the average cost of supply.
- Bonds are not very profitable: For example, for every 1 lakh crore of UDAY bonds issued results in a loss of up to 6,000 crores for banks and financial institutions that have lent money to them.
- Putting the onus on the states to deal with the situation: This has further strained the State finances.
News Summary Regarding CAG’s Report:
- MSEDCL could not achieve its targets of bringing down the AT&C losses to the desired level.
- On the contrary, AT&C losses of MSEDCL increased from 16.94% in 2018-19 to 20.73% in 2020-21.
- This is due to poor collection mainly from agricultural consumers and various State Government departments.
- Thus, the main objectives of achieving financial and operational turnaround of MahaVitaran were not achieved in spite of implementing the UDAY scheme.
- The Government of Maharashtra may ensure that all electricity dues of MahaVitaran from departments and local bodies are cleared in a time bound manner.
- MahaVitaran should complete DT (Direct Connected) metering and feeder segregation expeditiously and reduce the AT&C losses to 15% by improving its billing and collection efficiency.
Q1) What are the powers of the Comptroller and Auditor General of India (CAG)?
It shall be the duty of the CAG to audit all trading, manufacturing, profit and loss accounts and balance-sheets and other subsidiary accounts kept in any department of the Union or of a State; and in each case to report on the expenditure, transactions or accounts so audited by him.
Q2) What is the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY)?
DDUGJY is designed to provide continuous power supply to the entire rural India. It was launched in 2014 (by the Ministry of Power) to electrify 18,452 unelectrified villages by May 1, 2018.
Source: In spite of UDAY, no rise in power company turnaround