UDAY Helps Power Distributors Save Rs 14,100 Crore In Nine Months
Cost cuts and higher tariffs temporary relief, efficiency must improve for long-term gains, says India Ratings.
India’s stressed power distribution companies showed first signs of improvement as they saved Rs 14,100 crore in the nine months to December under the government’s UDAY scheme to revive the sector, a report by India Ratings and Research said.
The green shoots in the financial performance of discoms appeared through reduced interest costs and savings in power purchase costs, the report said. The scheme has also freed up Rs 22,000 crore capital for banks, equipping lenders to bolster their balance sheets, it said.
Launched in November 2015, UDAY, or Ujjwal Discom Assurance Yojana, is the third relief package for the power discoms in 12 years. Inability to hike tariffs, under-recoveries linked to power theft and sops announced by governments ahead of elections left the companies saddled with debt. Total liabilities stood at Rs 4.3 lakh crore with interest rates of 14-15 percent when the scheme was launched, and 26 states and a Union Territory have so far opted for it.
UDAY was a step in the right direction, Vinayak Chaterjee, chairman of Feedback Infra Pvt. Ltd., an infrastructure advisory firm, told BloombergQuint.
It would be instructive to see how much of the reduction of expenses of discoms is because of UDAY that reduces interest costs and how much has come from actual decrease in aggregate technical and commercial losses.Vinayak Chaterjee, Chairman, Feedback Infra Pvt. Ltd.
India Ratings too believes cost cuts and tariff hikes would only provide temporary relief and long-term and sustained improvement has to originate from efficiency gain.
The scheme entails states to take over three-quarters of the debt of discoms over two years to March and issue bonds to refinance loans.
India Ratings estimates states have issued bonds worth over 86 percent of the Rs 2.69 lakh crore discoms’ debt eligible for restructuring. The pending bonds worth Rs 36,278 crore will be issued by discoms. States were given a relaxation in the caps under the Fiscal Responsibility and Budget Management Act till March and bonds will now be subject to fiscal space available to them.
Several States Underperforming
Initial signs are encouraging. Gap between average cost of supply and realisation, and the decline in technical and commercial losses has improved at the aggregate level, according to India Ratings’ initial assessment.
Improvement in efficiency, however, hides under-performance by several states. Only three – Goa, Gujarat and Rajasthan – beat their target for reducing transmission and commercial losses. These losses were higher in nine months to December compared to the previous year for 12 states – Andhra Pradesh, Assam, Bihar, Chhattisgarh, Jammu and Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Puducherry, Punjab, Uttar Pradesh and Uttarakhand. While Haryana, Jharkhand and Manipur improved efficiency, they missed the target.
Performance on gap between costs and realisations was marginally better. Only Gujarat, Haryana, Himachal Pradesh and Uttar Pradesh beat the target. Six others reduced the gap but didn’t meet the target while it rose for nine others.
Few good practices such as prepaid meters (Manipur), spot-billing (Bihar) and public-private-partnership (Rajasthan) are praise worthy and can be emulated by other states to improve efficiency, India Ratings said.
Other Highlights
- Chhattisgarh’s discom turned profitable in first quarter of last financial year 2016-17.
- Gujarat discoms increased their profitability in first three quarters of the year ended March.
- Haryana discoms reported profits in the second and third quarters of the year.
In a separate statement, power ministry said Uttar Pradesh’s collections rose 28.5 percent in first the quarter ended June of the ongoing financial year, reflecting a severe crackdown on theft. The state’s power procurement rose 15.5 percent during the quarter compared to 28.5 percent in the year-ago period.
