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Ujwal DISCOM Assurance Yojana (UDAY)

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The Ujwal DISCOM Assurance Yojana is a state-sponsored initiative that was introduced with the main objective of ensuring the financial and operational turnaround of electricity distribution companies (DISCOMs). Sikkim, Karnataka, Kerala, West Bengal, and Odisha are the states that are still not part of UDAY.
DISCOM” is an abbreviation for Distribution Company. These companies are basically responsible for the distribution of electricity to customers. DISCOMs purchase power from power-producing companies through Power Purchase Agreements (PPAs) and then deliver it to customers.
This electricity is transferred within and around the area of that specific DISCOM. The majority of these companies are run by the central and state governments. However, it was observed that most of the companies were suffering from significant losses. 
The main reason for these large losses was that the companies did not collect the full cost of what they had paid for the power. The Ministry of Power launched the Ujwal DISCOM Assurance Yojana on November 15, 2015, as a turnaround strategy to improve these companies’ poor financial situation (UDAY).

Objectives of the UDAY Scheme:

  • Ujwal DISCOM Assurance Yojana (UDAY) aims to reduce average technical and commercial losses from around 22 percent to 15 percent by 2018-19, as well as eliminate the gap between revenue-side supply and cost-side supply.
  • Improved operational efficiency through compulsory smart metering, transformer and meter upgrades, and so on. In addition, energy efficiency measures such as the promotion of efficient LED lamps, agricultural pumps, fans, and air conditioners will be initiated.
  • Reduction of power costs, interest burden, and power loss in the distribution sector, as well as improvement of DISCOMs’ operating efficiency for the supply of adequate electricity at affordable rates. 
  • UDAY is a debt restructuring scheme for DISCOMs that is optional for states.
  • Attracting states for active participation in the initiative by providing rewards to the best performers. The participating states take over 75 percent of their respective DISCOMs’ debts by signing a Memorandum of Understanding and issuing bonds in phases. The remaining 25% of the debt will be issued in the form of bonds by DISCOMs. 

Benefits of the UDAY Scheme:

The participating states’ power costs will be reduced with Central Government assistance. Further, the following benefits will be provided:

  • Increased domestic coal supplies.
  • Coal linkages are allocated at notified pricing.
  • Coal price rationalization
  • Allowing coal swaps and rationalizing coal linkages.
  • Supply of washed and crushed coal.
  • Additional coal at predetermined pricing.
  • Interstate transmission lines will be completed more quickly.
  • Power is purchased through open competitive bidding.
  • Further, these states will get additional priority financing under a variety of programs, including the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and the Integrated Power Development Scheme (IPDS) 

Challenges of the UDAY Scheme:

  • Losses in the Aggregate Technical and Commercial sector: Despite the 15% target, AT&C losses are still high, with some states indicating losses of over 40%. So far, just seven states have recorded losses of less than 15%, including Tamil Nadu, Telangana, Kerala, Gujarat, Andhra Pradesh, Goa, and Himachal Pradesh, while the remaining states have failed to achieve even this.
  • Increase in Prices: As renewable energy (RE) is displacing the consumption of low-cost coal, the rising share of RE in the distribution system raises the average cost of supply.
  • Not very Profitable: The interest received is reduced by at least 4-6%, indicating a loss of income. Every 1 lakh crore of UDAY bonds issued results in a loss of up to 6,000 crores for banks and financial institutions that have lent money to them.
  • The strain on State Governments: The Centre has also mandated that state governments gradually take over the losses of their SEBs, putting the onus on the states to deal with the situation. The percentage of Discom losses that states must bear will rise from 5% in 2016-17 to 10% this financial year, and eventually to 50% by 2019-20.
  • Debt Nonpayment: Due to the Discoms’ nonpayment of their loans, almost 21,000 MW of private coal-fired generation capacity is under stress. Power distribution companies in states like Tamil Nadu, Madhya Pradesh, and Maharashtra have defaulted on their Power Purchase Agreement (PPA) obligations. These states are forcing the central government to consider options such as providing regulators more authority to penalize Discoms.

Achievements of the UDAY Scheme:

  • It took off successfully, with several states joining the initiative. Several states took their utilities’ debt, improving their liquidity situation. Evidence also suggests that the power supply situation is improving.
  • The government’s UDAY initiative helped debt-ridden Discoms in 24 states to reduce losses to Rs 369 billion in 2018, down from Rs 515.9 billion the previous financial year.
  • The participating states improved their aggregate technical and commercial (AT&C or distribution) performance by 1%.

Reasons for Failure of UDAY:

  • The primary reason for failure, as recognized in policy circles, is Discoms’ failure to collect the full cost of power. 
  • The average loss (including technical and commercial losses) is around 22%.
  • However, several Discoms have suffered losses of more than 40%. 
  • It is possible to reduce losses from 40% to 15% without making large infrastructure investments. 
  • The scheme’s governance issues are complex.
  • The two most popular monitored parameters are loss levels and the difference between the ACS and ARR. 
  • These parameters have inherent problems since they fluctuate and it is difficult to predict their trend on a quarterly basis, making the release of funds complex and time-consuming. 

UDAY 2.0:

The Indian government launched the ‘UDAY 2.0’ initiative in the Union Budget 2020-21, with the aim of installing smart prepaid meters, prompt payments by DISCOMs, ensuring short-term coal availability, and reviving gas-powered plants. Further, Finance Minister Nirmala Sitharaman announced an Rs. 3.05 lakh crore (US$ 41 billion) initiative to revive DISCOMs and develop a framework to give electricity consumers to choose from service providers over a five-year period. According to the finance minister, Uday 2.0 will be one step ahead of the Uday initiative since it would integrate development funding for strengthening electricity distribution utilities with the Uday initiative. The combined scheme’s infusion of funds will be linked to achieving Uday 2.0 milestones.

The UDAY 2.0 scheme aims to ensure the following:

  • DISCOMs’ prompt payment.
  • The revival of gas-powered plants.
  • Short-term coal availability.
  • Smart prepaid meter installation 

Frequently Asked Questions Related to the UDAY Scheme:

Q1. When was UDAY Scheme launched? 
Ans. The Ministry of Power launched the Ujwal DISCOM Assurance Yojana in 2015 as a turnaround strategy to improve these companies’ poor financial situation (UDAY).

Q2. What are the Benefits of the UDAY Scheme? 
Ans.

  • Increased domestic coal supplies.
  • Coal linkages are allocated at notified pricing.
  • Coal price rationalization
  • Allowing coal swaps and rationalizing coal linkages.
  • Supply of washed and crushed coal.
  • Additional coal at predetermined pricing.
  • Interstate transmission lines will be completed more quickly.
  • Power is purchased through open competitive bidding.
  • Further, these states will get additional priority financing under a variety of programs, including the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and the Integrated Power Development Scheme (IPDS) 

Q3. What is the Aim of the UDAY Scheme? 
Ans. The Ujwal DISCOM Assurance Yojana is a state-sponsored initiative that was introduced with the main objective of ensuring the financial and operational turnaround of electricity distribution companies (DISCOMs). Ujwal DISCOM Assurance Yojana (UDAY) aims to reduce average technical and commercial losses from around 22 percent to 15 percent by 2018-19, as well as eliminate the gap between revenue-side supply and cost-side supply.

Q4. The Objective of the UDAY 2.0? 
Ans. The UDAY 2.0 scheme aims to ensure the following:

  • DISCOMs’ prompt payment.
  • The revival of gas-powered plants.
  • Short-term coal availability.
  • Smart prepaid meter installation

Q5. What are the Challenges faced by UDAY Scheme? 
Ans. 

  • Losses in the AT&C (Aggregate Technical and Commercial) sector.
  • Increase in prices
  • Not very profitable.
  • The strain on state governments
  • Debt nonpayment  

Q6. List the names of the state who has not joined the UDAY Scheme. 

Ans. Sikkim, Karnataka, Kerala, West Bengal, and Odisha are the states that are still not part of UDAY.

 



Last Updated : 03 Nov, 2022
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