First MOU on “UDAY”

First MOU on “UDAY” signed by Jharkhand state 

The Government of India, the State of Jharkhand and the JBVNL (Jharkhand Bijli Vitran Nigam Limited) signed a Memorandum of Understanding (MOU) under the Scheme UDAY – “Ujjwal Discom Assurance Yojana”.

Jharkhand would derive an overall net benefit of approximately Rs. 5,300 Crores through UDAY. Signing of this MOU heralds the onset of major Distribution reforms in the country under UDAY.

What is UDAY?

The Scheme – UDAY (Ujwal Discom Assurance Yojana) has been launched to improve financial and operational efficiencies of power distribution companies (DISCOMs).

It envisages to reduce interest burden, cost of power and AT&C losses. Consequently, DISCOM would become sustainable to supply adequate and reliable power enabling 24×7 power supply.

The scheme provides that States would take over 75% debt of Discoms, as on 30th September, 2015 in two years.

UDAY has inbuilt incentives encouraging State Governments to voluntarily restructure their debts.

These incentives include taking over of DISCOM debt by the States outside the fiscal deficit limits;

Reduction in the cost of power through various measures such as

• coal linkage rationalization,

• liberal coal swaps,

• coal price rationalization,

• correction in coal grade slippage,

• allocation of coal linkages at notified prices;

Reduction in interest burden.

UDAY is different from earlier restructuring schemes in several ways including flexibility of keeping debt taken over outside fiscal deficit limit, reduction in cost of power and a series of time bound interventions for improving operational efficiency.

UDAY provides for measures that will reduce the cost of power generation, which would ultimately benefit consumers.

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WHAT IS DISCOM

• DISCOM stands for Distribution Company (India)
• UDAY provides for the financial turnaround and revival of Power Distribution companies (DISCOMs)  and ensures a sustainable permanent solution to the problem.
• UDAY is a path breaking reform for realizing the Hon’ble Prime Minister’s vision of affordable and accessible 24×7 Power for All.

Problems faced by DISCOMS:

• DISCOMs in the country have accumulated losses of approximately Rs. 3.8 lakh crore and outstanding debt of approximately Rs. 4.3 lakh crore.
• 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%
• Financially stressed DISCOMs are not able to supply adequate power at affordable rates, which hampers quality of life and overall economic growth and development.
• Efforts towards 100% village electrification, 24X7 power supply and clean energy cannot be achieved without performing DISCOMs.
• Power outages also adversely affect national priorities like “Make in India” and “Digital India”.
• In addition, default on bank loans by financially stressed DISCOMs has the potential to seriously impact the banking sector and the economy at large.

UDAY as a solution for DISCOMs:

1.Initiatives:

(i) Improving operational efficiencies of DISCOMs

(ii) Reduction of cost of power

(iii) Reduction in interest cost of DISCOMs

(iv) Enforcing financial discipline on DISCOMs through alignment with State finances.

Affect of Initiatives:

• Assures the rise of vibrant and efficient DISCOMs through a permanent resolution of past as well as potential future issues of the sector.
• It empowers DISCOMs with the opportunity to break even in the next 2-3 years.
• Operational efficiency improvements like compulsory smart metering, upgradation 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%.

Salient Features of UDAY

• States shall take over 75% of DISCOM debt as on 30 September 2015 over two years .
• first 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

• States will issue non-SLR including SDL bonds in the market or directly to the respective banks / Financial Institutions (FIs) holding the DISCOM debt to the appropriate extent.
• DISCOM debt not taken over by the State shall be converted by the Banks / FIs into loans or bonds with interest rate not more than the bank’s base rate plus 0.1%.which shall be equal to or less than bank base rate plus 0.1%.
• States shall take over the future losses of DISCOMs in a graded manner and shall fund them as follows:

Year	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
Previous Year’s DISCOM loss to be taken over by State	0% of the loss of 2014-15	0% of the loss of 2015-16	5% of the loss of 2016-17	10% of the loss of 2017-18	25% of the loss of 2018-19	50% of the previous year loss

• States accepting UDAY and performing as per operational milestones will be given additional / priority funding through Deendayal Upadhyaya Gram Jyoti Yojana(DDUGJY),Integrated Power Development Scheme (IPDS), Power Sector Development Fund (PSDF) or other such schemes of Ministry of Power and Ministry of New and Renewable Energy.
• Such States shall also be supported with additional coal at notified prices and, in case of availability through higher capacity utilization, low cost power from NTPC and other Central Public Sector Undertakings (CPSUs).
• States not meeting operational milestones will be liable to forfeit their claim on IPDS and DDUGJY grants.
• UDAY is optional for all States.
• States are encouraged to take the benefit at the earliest as benefits are dependent on the performance.