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Cover Story | May 2017

UDAY brings laudable progress in operational parameters

Debasis Mohapatra, Director-Power & Utilities, PwC India

Do you think UDAY has helped improve the finances of discoms over the last one year? Please back-up your answer with latest data.

The takeover of the financial liabilities of the power distribution companies (discoms) by the state governments has brought in huge benefits to the cost structure of the discoms. More than Rs.2.3 lakh crore of Ujjwal Discom Assurance Yojana (UDAY) Bonds have been successfully issued, bringing down the interest cost of discoms significantly. The estimated savings on account of interest cost reduction is expected to be to the tune of `6,400 crore per annum. The total estimated savings in interest cost of discoms till December 2016 has been Rs.11,989 crore.

The scheme 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% shown by 9 discoms in 7 states.

There has been commendable progress in the operational parameters. The feeder metering in urban and rural feeders are at 99% and 96% of the target proposed under UDAY. More than half of the distribution transformers (DT) have now been metered. In Rajasthan, the discoms have reduced ACS-ARR (Average Cost of Supply-Average Revenue Realised) gap from Rs.1.68/unit as in 2015-16 (Apri-March) to Rs.0.83/unit during H1 2016-17 (on input energy basis). In Haryana, the DHBVNL, for the first time since its inception has made profit of Rs.79 crore in H1(first half of) 2016-17 as against loss of Rs.472 crore in 2015-16. The discoms of Gujarat, Uttarakhand, Chhattisgarh and Maharashtra have achieved significant reduction in Aggregate Technical and Commercial (AT&C) losses.

What is the progress on increasing power tariffs to cover costs at least? How the political will be a catalyst in this respect?
The UDAY scheme was launched more than a year ago and as of now 27 States/ UTs have signed MOU for the scheme. Post-implementation of the UDAY scheme, tariff increase was observed in many state discoms - Rajasthan (~9.5%), Bihar (~55%), Karnataka (~8%), Meghalaya (~5.7%), Uttar Pradesh (~2%), Madhya Pradesh and Assam.

The UDAY Scheme was implemented with a focus on both cost efficiencies and revenue efficiencies. The above trend of tariff increase show that the State Electricity Commissions (SEC) are supporting UDAY scheme by realizing the mismatch between the tariffs and cost of power generation and thus providing adequate hike to the discoms so as to improve their financial as well operational condition. Further, despite huge financial support provided through the UDAY scheme, it seems the state governments are also backing up the decisions taken by the SECs for tariff hike in certain states. This shall initiate a progressive and steady growth towards of the discoms.

How long do you think UDAY will take to turnaround power discoms? Are there any efforts by discoms to ensure reliable 24x7 power supply?
Reliable 24X7 power supply is an integral commitment under the UDAY scheme envisaged to be achieved by 2018-19. By December 2016, 82% of the un-electrified households have received connections. Six states, namely, Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Manipur and Uttarakhand have already achieved the goal of 100% electrification. About 55 lakh domestic households (out of which 24 lakh are from Bihar alone) have received electricity connections post-implementation of the scheme. Haryana has launched an innovative scheme named (Mhara Gaon Jagmag Gaon÷ aimed at providing 24 hours power supply in rural areas. The supply hours of these feeders have been increased from 12 to 15 hours. After allowing for the specified quantum of technical losses below 20%, if the village pays bills to the extent of 90%, their electricity supply would be increased from 18 to 21 hours.

Which are the states that have made strides through UDAY and who are the laggards?
The best performing 5 states as on 31 December 2016 are Karnataka, Maharashtra, Gujarat, Goa and Uttarakhand. Post the implementation of the scheme, there have been 100% achievement in meeting urban feeder metering targets, 97% in rural feeder metering, 100% in rural feeder audit, 69% feeder segregation and 48% of urban DT metering. The strides made by various states in terms of the different facets of the schemes are highlighted here:

=Power purchase cost: The states which have joined the UDAY scheme have achieved tremendous reduction in their power purchase cost post-implementation of the scheme. The leading states in this aspect are Andhra Pradesh with Rs 0.35/kWh, Bihar with Rs 0.16/kWh, Assam with Rs 0.12/kWh, Haryana with Rs 0.10 and Jharkhand with Rs 0.08/kWh reduction in power purchase cost up to the third quarter (Q3)of 2016-17 over the previous year. These states have collectively saved more than Rs 2,100 Crore on power purchase.

=Gap between ACS and ARR: Seven states have achieved significant improvements in terms of reduction in ACS-ARR gap namely Andhra Pradesh, Goa, Gujarat, Haryana, Madhya Pradesh, Maharashtra and Rajasthan. Out of these, six discoms have achieved a negative ACS-ARR gap in one or more quarters of 2016-17. DGVCL and MGVCL have a cumulative negative ACS-ARR gap till December 31, 2017. The overall ACS-ARR gap has been reduced to Rs 0.41/kWh by the end of Q3 of 2016-17 from Rs 0.61/kWh in the end of the previous year.

=Profit margins: Chhattisgarh, Gujarat and Haryana discoms have shown a steady profit trend in the first three quarters of 2016-17. Gujarat discoms have increased their accumulated profits by 34.83%, Haryana discoms have reduced their accumulated losses by 64.66% and Chhattisgarh has turned around with a loss reduction of 175.56% in their books of accounts by the end of Q3 2016-17 over 2015-16.

=AT&C loss reduction: The states which have participated in UDAY had an aggregate T&C loss of 24% in the end of FY 2015-16 which has been reduced by 1.5% by December 31, 2016. The highest reduction has been achieved by Goa, Gujarat, Haryana, Jharkhand, Karnataka, Madhya Pradesh, Manipur and Rajasthan. In all, 13 discoms have reported reduction in AT&C losses.

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% prepaid metering and have brought down the AT&C from 42% in FY 2015-16 to 35% by the end of Q3 2016-17.

Bihar has implemented an indigenous spot billing mechanism and have significantly increased their billing coverage in both rural and urban areas. Though surplus power is available in the country, offtake at discoms' end is slack. Are there any visible signs of the state discoms signing new PPAs?

The lower energy requirement 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 are surplus in power but many are still power deficit. Going forward, though UDAY has resulted in liquidity improvement of the discoms, the signing of new PPAs will depend on the ability of discoms to enter into long term commitments. 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 INR 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. This implies that the focus is on the short term market and thus the electricity generating companies will continue to remain exposed to volatile prices.

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