Ujjwal Discom Assurance Yojana or more tellingly its acronym Uday, if it succeeds, would deserve to become the standard text for overcoming crippling indebtedness. So overwhelming is the challenge. The outstanding debt of discoms as on March 31, 2015 stood at nearly Rs 4.3 lakh crore, while their losses amount to nearly Rs 3.8 lakh crore. A majority of the overall debt is held by utilities in the eight states of Rajasthan, Uttar Pradesh, Haryana, Tamil Nadu, Andhra Pradesh, Jharkhand, Bihar and Telangana.
In the first week of the New Year, the power minister said that within two months of the scheme being launched, a total of 15 out of 29 states are on board. Four major states – UP, Bihar, Odhisha & Maharashtra – have agreed to join Uday while Jharkhand has been the first state to ink an MoU with the power ministry to avail the Uday scheme.
In simple terms, what does this debt recast involve? It means that the state governments will be taking over the debt portfolio of utilities comprising of loans from banks, outstanding dues to power generator companies, other entities, interest, surcharge etc. Interest rates will be pared down sharply because all debt will be structured as state guaranteed discom bonds, which will be paid back to the Banks/FIs over a defined period. This debt absorption by the states will not be accounted for in states’ fiscal deficit for two years. Financial restructuring is a major component of discom health, other technical factors like cleaning up AT&C losses have to proceed in tandem. Only when discoms are healthy can 24×7 power become a reality, otherwise we will persist with a situation when gencos will wallow with excess capacities and horribly low PLF because discoms are unable to buy even at nominal tariff rates.
What are the risks? The greatest risk is, trusting the states with fiscal responsibility. Too often we have seen states displaying a propensity towards giving amnesty to vote-bank groups that default in a chronic manner, willful negligence towards power theft. And when the states falter badly owing to their indiscipline they raise the bogey of concessions and packages. Finally, the tariff policy has to be dynamic reflecting the price movements of the inputs. If renewable acquisitions go down, so must also tariff. And of course, vital is the growth in the states for enough revenues are needed to service debt obligations. This time we must not falter.
