UDAY has brought about an initial turnaround in discom efficiency during the last one year. However, sustaining the pace is vital for bringing the power sector out of the woods.
The scheme aiming to turn around ailing power distribution companies (discoms) in the country, Ujwal DISCOM Assurance Yojana (UDAY), has been successful in ironing out some of the edges in their operation and show a direction for regaining their financial health. The scheme looks promising when it comes to bridging the paradox created by 25,000 MW of surplus power on the one side, and inability of 300 million people in accessing electricity, which was the case when the scheme was announced in November 2015.
Though the situation has not been reversed totally, some of the discoms are turning profitable and are bringing their aggregate technical and commercial (AT&C) losses down, besides narrowing the gap between the operational parameters set and actual performance. However, just one year is a very small window to draw a conclusion that the scheme has changed the face of the power sector, which has been grappling for decades with the inadequacies in discom operations. That way, it has a long way to go before its fruits can be reaped aplenty.
The progress made on several parameters has, however, nudged the figures in different directions over the last one year - while the inaccessibility to power was brought down to 250 million people from 300 million earlier, the stranded power capacity shot up to 46,000 MW - 30,000 MW is thermal generated, and the remaining 16,000 mw is in gas fed, according to CEA. This surplus capacity could be utilised only when the discoms come out of debt hassles and are able to buy more power from the generators for catering it to the needy.
As on March 31, 2014, just before UDAY was conceived, SEBs had accumulated losses of around Rs.3.5 lakh crore. About 40 per cent of which are attributed to AT&C losses and the rest due to failure of tariffs in keeping pace with rising costs of supply. The only saving grace is that during the previous three years, the losses were slowly tapering - from Rs.72,369 crore in 2011-12 to Rs.70,894 crore in 2012-13 to Rs.63,765 crore in 2013-14. But the trend reversed in 2014-15 and losses inched up to Rs.67,000 crore in 2014-15.
The electricity distribution sector was a national embarrassment marked by poor operational efficiencies leading to high AT&C losses, and the state governments which were not inclined to hike tariffs in line with rising cost, and huge interest burden due to funding of losses through debt.
This had necessitated two bailouts by the Centre in the past, though they have failed to bring in the desired results, despite heaping heavy toll on the exchequer. Does this scheme make any difference for the discoms? The answer seems to be in the 'affirmative', according to the emerging data.
Earlier, the state governments were taking it easy, funding the losses of state discoms through budgets or debt, a softer alternative compared to raising tariffs and facing the wrath of the irate electorate. The scheme, aimed at improving the financial and operational health of discoms, has proposed to transfer 75 per cent of the debt (as on September 30, 2015) to the state governments and keep the house of discoms in order through some carrots and sticks.
Issuance of bonds under UDAY has already been instrumental in clearing major portion of debt and dues. As envisaged under the scheme, 13 of the 27 state governments which have joined UDAY have raised Rs.2.32 lakh crore through state government bonds, including Rs.24,000 crore through discom bonds, by end-March 2017, accounting for about 85 per cent of the Rs.2.72-lakh crore of total debt and dues to be restructured under UDAY. Rs.2.72-lakh crore forms 71 per cent of the total debt of the UDAY states. While the total debt of all the state-owned discoms were at Rs.3.96 lakh crore as on end-September 2015, the 26 states/union territories which have joined UDAY was at Rs.3.82 lakh crore, accounting for 97 per cent of the total debt of discoms, according to a presentation made by Ritu Maheshwari, ED (State Gen, T&D), REC and ED (UDAY) at a meeting of the Ministry of Power in the last week of March 2017.
Interest rates for the bonds issued by the states are in range of 7.04-8.68 per cent, while the bonds by discoms had interest rate of 9.75 per cent, according to Ministry of Power (MoP) officials. 'The estimated savings on account of interest cost reduction is expected to be to the tune of Rs.6,400 crore per annum,' said Debasis Mohapatra, Director-Power & Utilities, PwC India.
'Discoms of states have achieved an estimated saving of Rs.11,989 crore in interest costs till December 2016,ö Maheshwari added, stating that more clarity on performance figures will emerge only after the audited annual data is available later. Rajasthan, Uttar Pradesh (UP) and Haryana were the major beneficiaries of interest cost fall under UDAY at Rs.5,068 crore, Rs.3,323 crore and Rs.2,084 respectively, according to the tentative data available up to December 2016. (See graph for more details) Leading rating agency, ICRA, estimates that debt refinancing or takeover by the state governments will lower book losses of discoms from Rs.67,000 crore in FY2015 (2014-15) to Rs.37,500 crore in FY2017.
Cost & Tariff
The UDAY scheme was implemented with a focus on both cost efficiencies and revenue efficiencies. As such, UDAY envisaged reduction of cost of power, improve operational efficiencies to bridge ACS-ARR gap and tariff hikes to bolster discoms' health. On purchase cost front, states like Andhra Pradesh, Bihar, Assam, Haryana and Jharkhand reduced power purchase cost up to 35 paise, 16 paise, 12 paise, 10 paise and 8 paise per unit, respectively, during the nine months ending December 2016. Discoms were required to file tariff petitions by November 30, 2016 so that tariff orders could be issued by State Electricity Regulatory Commissions (SERCs) during the fiscal, i.e. before March 31, 2017, for revisions to be effected in FY2018. This is especially significant, given that one of the key conditions under UDAY is timely filing of tariff petitions by the discoms to enable timely issuance of tariff orders by the respective SERCs. But only 14 states and UTs have filed tariff petition for FY2018 so far. Sabyasachi Majumdar, Senior Vice President and Group Head, ICRA said, ôThe progress in filing of the tariff petitions for revision for FY2018 by the state-owned discoms is less than satisfactory with only 16 out of the 29 states having filed petitions so far, while the delay can be attributed to the recently concluded assembly elections in a few states.'
However, 10 states have been granted tariff-revisions in FY17 by the respective Commissions to cover the 'cost of supplies', claims Ministry of Power in a presentation (See table). The tariff hikes ranged between 2 % to 9.5%.
With huge financial support provided through the UDAY scheme, it seems the state governments are also backing up the decisions taken by the SERCs for tariff hike in certain states. This shall initiate a progressive and steady growth of the discoms in future.
'The delay in filing of tariff petitions and subsequent issuance of tariff orders continues to be observed in large states like Rajasthan, Tamil Nadu and UP. The delay in filing of tariff petitions for FY2018 in states like Punjab, Goa and UP can be attributed to the elections to the state assembly held in March 2017,' said Majumdar.
Overall, gap between average cost of supply and average revenue realised (ACSûARR gap) is an important indicator that reflects the real health of discoms by reflecting the cost-coverage ratio through billing.
This gap has reduced to 49 paisa per kWh in the first nine months of FY2017 from 61 paisa per kWh in FY2016. During this period, 12 discoms have reported improvements from their FY2016 performance level, while six other discoms have had negative ACSûARR gap in one or more quarters during the first three quarters, according to Maheshwari.
ôIn Rajasthan, the discoms have reduced ACS-ARR gap from Rs 1.68/unit as in 2015-16 (April-March) to Rs.0.83/unit during H1 2016-17 (on input energy basis),ö said Mohapatra.
AT&C loss of discoms is abnormally high in India eating into the vitals of the discoms, debilitating their financial health drastically. However, the latest trends show signs of improvement. 'AT&C loss of UDAY states has reduced to 22.5 per cent in FY2017 (9 months) from 24 per cent in FY2016,' Maheshwari said.
Based on tentative data collected so far by MoP, 13 discoms have reported improved AT&C loss at the end of Q3 (December) FY2017 compared to FY2016 level. APEPDCL of Andhra Pradesh has continuously maintained low AT&C loss and at the end of Q3FY2017 its AT&C loss was at 7.2 per cent. The discoms of Gujarat, Uttarakhand, Chhattisgarh and Maharashtra have achieved significant reduction in AT&C losses.
(See Graph) As part of this scheme, seven states have reduced their transmission losses in FY2017 - AP, Assam, Chhattisgarh, Haryana, Madhya Pradesh, Maharashtra and Bihar (See Table).
The special initiatives taken by some of them include:
Rajasthan has launched 'Mukhya Mantri Vidyut Sudhar Abhiyan' to reduce AT&C losses through various technical and anti-theft measures.
Manipur has done an extensive 'Name & Shame' campaigns to defame non-paying consumers using public hoardings, newspaper notices with consumer details, radio announcements and other social-media like Facebook, Whatsapp etc. They have also implemented 100 per cent prepaid metering and have brought down the AT&C losses from 42 per cent in FY2016 to 35 per cent by the end of Q3 FY2017.
Bihar has implemented an indigenous spot billing mechanism and has significantly increased their billing coverage in both rural and urban areas.
UDAY also envisages improved operational efficiency of discoms through feeder metering, feeder segregation, DT metering and through promotion of use of LED bulbs. Cent percent implementation target was achieved in installation of urban feeder metering (2,649 meters installed post-UDAY), rural feeder audit (74,638 units) and LED distribution (19.8 crore), while 97 per cent of the target was achieved in rural feeder metering (4,803 meters), 69 per cent of feeder segregation target, and 48 per cent of metering of distribution transformers in urban areas (59,532 units). (See table)
Though the audited data is not ready for all the discoms, Gujarat, Haryana and Chhattisgarh have shown positive profit trends, while DHBVN and UHBVN turned profitable in Q2 and Q3 respectively. In Haryana, DHBVNL, has, for the first time since its inception, made profit of Rs 79 crore in H1 (first half of) FY2017 against loss of Rs 472 crore in FY2016.
This improved profitability trend has resulted in fall in subsidies drawn by the states as well. State-owned discoms of Rajasthan, Haryana, AP, Chhattisgarh, Madhya Pradesh and Bihar have reduced their subsidy, booked as percentage of the revenue in the range of 5-10 per cent, in the current financial year, said REC.
UDAY has institutionalised a self-regulation mechanism in power distribution utilities by bringing in ownership of the financial and operational turnaround of utilities on state governments. This is evident from the reduction in dependence on subsidy by up to 18 per cent shown by 9 discoms in 7 states, says Mohapatra.
Does all this mean that the paradox in the power sector will be removed by increasing the demand by supplying quality 'Power to All'? And that will it increase singing of new power purchase agreements (PPAs), providing some relief to generators facing idle capacity? These have still remained the millions dollar questions.
The lower energy off-take of discoms is partly due to their fragile financial health resulting in fewer PPAs. With the average power cut in India more than 6 hours/ month, with some states having power cut as high as 48 hours/ month, it seems though some of the states have surplus power, many are still facing power deficit. Majumdar of ICRA sees 'no visible signs' of state discoms signing new PPAs as of now. He says, 'A significant pick-up in energy demand is required which will critically depend upon factors such as capex revival in industrial sector which contributes about 30 per cent of energy demand in the country, and sustained improvement in the financial position of discoms, so that their off-take improves and load shedding pattern is reduced.'
'The decision of entering into a long term PPA lies with the discoms backed by the regulators with the dependability on the actual demand. With short term rates at such low levels (average of last 30 days was Rs 2752.72/MWh) even regulators may force the discoms to go with the power purchase via short term route rather than signing long term PPAs,' says Mohapatra of PwC, citing the power market condition
UDAY could herald the beginning of a new era for the power sector if it continued to pursue its objectives with the same kind of commitment over the next 10 years at least. This is just the beginning. One could hope, over time, discom liquidity will improve enabling them to think of buying more power for supplying it to 'all' in their operational geographies.
Successful implementation of the UDAY program remains vital for the power sector and its stakeholders prosper as a whole. However, its success hinges upon participating state's willingness and ability to adhere to key operational and financial milestones, including standardisation of billing and collection systems, installation of smart grids, reduction of AT&C losses etc.
Still achieving the target of 15 per cent of AT&C loss and ACS-ARR gap target of zero seems to be a far cry. Both have political overtones, though the powers that be are falling in line, of late, to an extent. But that should not hinder the progress of the scheme. The direction is still positive and there is no reason to think that it will reverse in the next few years.
The demand for power is growing on a compounded annual growth rate (CAGR) of around 7 per cent per annum. This should double in the next 10 years in order to realise the dream of quality 'Power to All.'
- BS Srinivasalu Reddy
Parameter Best performing Discoms
AT&C Loss1. UGVCL, Gujarat (4.6%)
2. APEPDCL, Andhra Pradesh (7.2%)
3. DGVCL, Gujarat (9.6%)
4. MGVCL, Gujarat (10.75%)
ACS-ARR gap1. DGVCL, Gujarat (-0.07)
2. MGVCL, Gujarat (-0.06)
3. UGVCL, Gujarat (-0.04)
4. CESC, Karnataka (-0.02)
Illustrative ranking of DISCOMs as highlighted in UDAY Portal
Note: BESCOM, MGVCL, HESCOM are overall top performers till the current quarter (Q3FY17)
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