The Union Cabinet today approved the financial bailout for revival of Power Distribution companies (Discoms ) mooted by Power Ministry.
The weakest link in the value chain is distribution, wherein Discoms in the country have accumulated losses of approximately Rs. 3.8 lakh crore and outstanding debt of approximately Rs. 4.3 lakh crore as on March, 2015.
Financially stressed Discoms with the potential to seriously impact the banking sector and the economy at large are not able to supply adequate power at affordable rates thus adversely affect national priorities.
Due to legacy issues, Discoms are trapped in a vicious cycle with operational losses being funded by debt. Outstanding debt of DISCOMs has increased from about Rs. 2.4 lakh crore in 2011-12 to about Rs. 4.3 lakh crore in 2014-15, with interest rates upto14-15%.
UDAY the new scheme assures the rise of vibrant and efficient Discoms s through a permanent resolution of past as well as potential future issues of the sector. . This is through four initiatives such as improving operational efficiencies ,reduction of cost of power; reduction in interest cost of companies and enforcing financial discipline on Discoms through alignment with State finances.
Operational efficiency improvements like compulsory smart metering, up -gradation of transformers, meters etc., energy efficiency measures like efficient LED bulbs, agricultural pumps, fans & air-conditioners etc. will reduce the average AT&C loss from around 22% to 15% and eliminate the gap between Average Revenue Realized (ARR) & Average Cost of Supply (ACS) by 2018-19.
States shall take over 75% of Discoms debt as on 30 September 2015 over two years – 50% of DISCOM debt shall be taken over in 2015-16 and 25% in 2016-17. This will reduce the interest cost on the debt taken over by the States to around 8-9%, from as high as 14-15%; thus improving overall efficiency.
Further provisions for spreading the financial burden on States over three years, will give States flexibility in managing the interest payment on the debt taken over, within their available fiscal space in the initial few years. States not meeting operational milestones will be liable to forfeit their claim on other incentives given under other schemes UDAY is optional for all States. However, States are encouraged to take the benefit at the earliest as benefits are dependent on the performance
