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UDAY Report Card: Positive Turnaround For Few States, Challenges Remain For Other

While a performance turnaround is witnessed due to UDAY, there is a diversified performance portfolio with varying degree of success by different discoms with reference to the targets

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Despite slow progress, the government's Ujjwal Discom Assurance Yojana (UDAY) is proving out to be reaping better results, as compared to the earlier financial restructuring packages. The improvement in the financial health of state power distribution companies (discoms) must be evaluated in their long term efficiency improvement and not short financial gain.

Introduced to turn around the health of debt laden discoms, the scheme projects better improvement in the operational performance, compared to the previous schemes. However, the financial performance still remains lower, according to the study done by India Research and Rating Company (Ind-Ra).

"At an aggregate level, both aggregate transmission and commercial (AT&C) losses (Operational efficiency) and the gap between average cost of supply and average revenue realisation (Financial outcome) in 9 months of FY17 were lower than FY16 levels", says the report.

With the reduction in the interest costs and power purchase costs, 'green shoots' have emerged.  Chhattisgarh discom turned profitable in the first quarter of 2016-17, while Gujarat discuss increased their profitability in Apr-Dec 2016-17. Similarly, Haryana discoms turned profitable in second quarter and third quarter 2016-17.

While a performance turnaround is witnessed due to UDAY, there is a diversified performance portfolio with varying degree of success by different discoms with reference to the targets.

"The impact of UDAY on financial and operational improvement is on the right track, however, with large inter-state variations", according to Ind-Ra.

Out the 10 states, which joined UDAY in FY16, AT&C loss reduction trajectory of six states - Bihar, Chhattisgarh, Jammu and Kashmir, Punjab, Uttar Pradesh and Uttarakhand do not inspire confidence. Only Gujarat and Rajasthan have been able to achieve AT&C loss reduction trajectory in 9MFY17. In fact, the AT&C loss of six states - Bihar, Chhattisgarh, Jammu and Kashmir, Punjab, Uttar Pradesh and Uttarakhand in 9MFY17 was higher than FY16. Haryana and Jharkhand although reduced AT&C losses in 9MFY17, it still was higher than the nine-month target.

Similarly, the performance with respect to the average cost of supply (ACS) - average revenue realisation (ARR) gap reduction, only Gujarat, Haryana, Himachal Pradesh and Uttar Pradesh were able to exceed ACS - ARR gap reduction target during the nine months of FY17. While six states were able to reduce the gap from FY16 level, the gap further widened for nine states.

 "The under-achievement by several states in AT&C losses and ACS - ARR gap from targeted level is a cause of concern and requires reconsideration of strategy. 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", says the report.

The taking over of discom's debt by the state government in their own books and converting them into equity, loan or grants to discoms has indeed benefited the discoms immensely. However, it has yet not shown any tangible improvement in financial operations of discoms.

The major reason attributed to the below par achievements in the reduction of AT&C losses and ACS - ARR gap is less than 50 per cent achievement in six of the 10 crucial operational parameters.

"While the performance of feeder metering both in rural and urban areas is close to 90 per cent and more, the same for smart metering needs concentrated effort for improvement. Improvements in under-performing parameters such as smart metering, distribution transformer (DT) metering (rural), DT metering (urban) and usage of LED bulbs is vital for achieving operational and the consequent financial success under UDAY", according to the study which also mentions bringing of tighter monitoring of action plan, appointment of nodal officers and state level monitoring committee to get the desired results.

On the positive side, UDAY has impacted discoms' finances favourably, both on the cost and revenue front. Interest cost is more than 8% of discoms' cost; it is estimated that UDAY has resulted in Rs 119.89 billion savings in interest cost in 9MFY17.


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