Union Cabinet approved UDAY for financial turnaround and revival of DISCOMS

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Who: Union Cabinet
What: Approved UDAY
When: 5 November 2015
Why: For financial turnaround and revival of DISCOMS

The Union Cabinet on 5 November 2015 gave its nod to Ujwal DISCOM Assurance Yojna (UDAY), a new scheme proposed by the Ministry of Power.

The scheme aims at alleviating the financial crunch faced by Power Distribution companies (DISCOMs) that has impaired their ability to buy electricity. The scheme targets the revival of DISCOMs. It will also ensure a sustainable permanent solution to the problem.

The debt on DISCOMs

As on March 2015, the country’s DISCOMs have accumulated losses of approximately 3.8 lakh crore rupees and outstanding debt of approximately 4.3 lakh crore rupees.

Outstanding debt of DISCOMs increased from about 2.4 lakh crore rupees in 2011-12 to about 4.3 lakh crore rupees in 2014-15, with interest rates of upto 14-15 percent.

Due to the financial hassles, DISCOMs are not able to supply adequate power at affordable rates, which turned out to be one of the hurdles in the overall economic growth and development.

How UDAY will revive the DISCOMS?

UDAY will empower DISCOMs with the opportunity to break even in the next 2-3 years through four initiatives:

Improving operational efficiencies of DISCOMs.

Reduction of cost of power.

Reduction in interest cost of DISCOMs.

Enforcing financial discipline on DISCOMs through alignment with state finances.

Key features of UDAY

States will take over 75 percent of DISCOM debt as on 30 September 2015 over two years.

Union Government will not include the debt taken over by the states n the calculation of fiscal deficit of respective states in the financial years 2015-16 and 2016-17.

States will issue non-SLR including SDL bonds in the market or directly to the respective financial institutions holding the DISCOM debt to the appropriate extent.

States will take over the future losses of DISCOMs in a graded manner.

States accepting UDAY and performing as per operational milestones will be given additional/priority funding through schemes of Ministry of Power and Ministry of New and Renewable Energy.

States not meeting operational milestones will be liable to forfeit their claim on IPDS and DDUGJY grants.