Cabinet okays UDAY scheme to cut discom losses

Seeking to rescue the almost bankrupt state electricity boards, the cabinet late on Thursday approved a scheme for a rejig of Rs4.3 lakh crore debt of the utilities, besides measures to cut power thefts and align consumer tariff with the cost of generating electricity.

The union cabinet, headed by Prime Minister Narendra Modi, approved a scheme to ease the financial crunch facing power distribution companies, or discoms, that has impaired their ability to buy electricity.

But the package failed to lift power stocks. Power and power-related stocks tumbled as much as 13 per cent in today's trade after the centre unveiled the Ujwal Discom Assurance Yojana (UDAY) to wipe out discoms' losses by FY19.

The plan calls on state governments to take over 50 per cent of discom debts by end-FY16 and a further 25 per cent by end-F17. The rest 25 per cent will be converted by banks/NBFCs into loans or state government-guaranteed bonds.

The scheme has placed various constraints on the ability of discoms to incur new losses.

The central government will ease rules to allow the states participating in the scheme to borrow more and help with the additional burden.

The rescue plan provides "a permanent resolution of past as well as potential future issues of the sector" and empowers the utilities to break even in next two - three years, he said.

"This is through four initiatives - improving operational efficiencies of discoms, reduction of cost of power, reduction in interest cost of discoms and enforcing financial discipline on discoms through alignment with state finances," he said.

Operational efficiency improvements are proposed to be brought in by compulsory smart metering, upgradation of transformers and meters to reduce electricity lost during transmission and distribution (or theft) from around 22 per cent to 15 per cent by 2018-19.

By the same year, the gap between average revenue realised (or user charges) and average cost of supply (or cost at which electricity is procured) will also be eliminated.

"People will not bear the cost of inefficiency of discom. It is states' responsibility to ensure that discoms become financially viable," Goyal told reporters after the cabinet meeting.

The scheme, which is optional, will be operationalised through signing of MoUs.