The Scroll.in article “Can Indians really expect 24×7 power supply in the near future?”, published October 11, 2017, takes an extremely sceptical view of the likelihood of India achieving both electrification for every household and 24×7 power supply within the targeted timeframes.
Focusing on the financial states and other reported problems of power distribution companies (DISCOMs), the article rushes through a mention of the newly launched Saubhagya scheme, before ruing the plight of DISCOMs and zeroing in on the Ujwal DISCOM Assurance Yojana (UDAY) scheme. As such, it is UDAY that is in the writer’s line of fire, which is dismissed thus: “Even the UDAY scheme, which completes two years next month, has not matched up to expectations.”
It is, honestly, nobody’s case to deny that power DISCOMs have been facing serious problems, especially because of their debts. As a matter of fact, UDAY was designed to redress this specific matter. Scroll.in wastes words on regurgitating old arguments and well-worn facts about power distribution. But even in its criticism of UDAY, the article has not taken a full perspective on the scheme and everything it has been doing. Thereafter, it has based its dismissal of UDAY on grounds of reportedly too few states cutting their losses and too few states raising their tariff rates despite signing the UDAY MoU and issuing tariff orders. Following from this, Scroll.in questions the validity of the claims made by the power ministry about UDAY’s progress and, therefore, of the success and utility of the scheme itself.
UDAY: Scope, Features & Variables
There are certain fundamental facts pertaining to UDAY that Scroll.in should note, because ignorance of these would ensure an approach flawed in its fundamentals. We have said above that if power DISCOMs were doing well, UDAY would have had no raison d’etre. So it’s a no-brainer that DISCOMs have been in poor health. What should also be kept in mind is that UDAY was not designed to do magic and produce overnight results. It is a long-term scheme and even as it nears its second anniversary, its target dates are still in the future and not tomorrow.
Even before the current number of 27 states had all signed up to UDAY, the scheme’s progress would naturally vary from state to state. Different states have signed up at different times and the scheme’s coverage has only increased in these two years and conditions widely vary among the states concerned. Among those variables, we have to look at each state’s legacy issues of longstanding loss and inefficiency which affect power distribution and the financial health of DISCOMs. Then, there is also the question of infrastructure which, too, would show inter-state variations as well as other operational hindrances.
Since the article devotes a long section to the problems of DISCOMs, perhaps it would have done itself a service by considering and comparing these inter-state and also intra-state variables and thereafter estimating how the same may impact the working of UDAY. As one example, we can look at Uttar Pradesh, which had a total DISCOM debt of Rs 53,200 crore at the time of signing on to UDAY. So, it is not improbable that there could be obstacles and delays in turning the situation around for such a state.
Another fact that too is often overlooked is that while UDAY aims at a financial turnaround of DISCOMs, operational turnaround is also in its focus. The progress of states that have historically lagged behind in one or both of these aspects may naturally not match up to others which have shown faster results. They may need more time to address operational efficiency issues before showing financial efficiency on their balance sheets. Operational efficiency under UDAY involves compulsory smart metering, upgrade of transformers, meters, etc. While the article does talk about the government prescribing these last items, it does not show what progress has been made on these under UDAY.
UDAY is about cooperative and competitive federalism. Opting for the scheme is left to the state. And once they sign up, states are supposed to exhibit competitiveness to ensure the financial and operational turnaround. Here again, UDAY’s long-term scope should be remembered and all the issues raised by the article would tend to fall under the ambit of the competitive and cooperative federalism mentioned above. None of it can actually be justifiably cited to claim it is UDAY itself which has disappointed.
The transformative features of UDAY are noted below:
- UDAY empowers DISCOMs with the opportunity to break even in the next 2-3 years. There are four initiatives for this: (i) Improving operational efficiencies of DISCOMs; (ii) Reduction of cost of power; (iii) Reduction in interest cost of DISCOMs; (iv) Enforcing financial discipline on DISCOMs through an alignment with state finances.
- Operational efficiency improvements — like compulsory smart metering, upgrade of transformers, meters etc, energy efficiency measures like efficient LED bulbs, agricultural pumps, fans & air-conditioners, etc — will reduce the average AT&C loss to about 15% and eliminate the gap between Average Revenue Realised (ARR) & Average Cost of Supply (ACS) by 2018-19.
- Reduction in cost of power is to be achieved through measures such as increased supply of cheaper domestic coal, coal linkage rationalisation, liberal coal swaps from inefficient to efficient plants, coal price rationalisation based on GCV (Gross Calorific Value), supply of washed and crushed coal, and faster completion of transmission lines. NTPC alone was to save Rs 0.35/ unit through the enhanced supply of domestic coal and rationalisation/ swapping of coal, which will be passed on to DISCOMs/ consumers.
- States shall take over 75% of DISCOM debt as on September 30, 2015 over two years — 50% of DISCOM debt was to be taken over in 2015-16 and 25% in 2016-17.
- The Centre would not include the debt taken over by states in calculating the fiscal deficits of respective states in the financial years 2015-16 and 2016-17.
- States would issue non-SLR, including SDL bonds in the market or directly to the respective banks/ Financial Institutions (FIs), holding the DISCOM debt to the appropriate extent.
- DISCOM debt not taken over by the state would be converted by the banks/ FIs into loans or bonds, with interest rate not more than the bank’s base rate plus 0.1%. Alternately, this debt may be fully or partly issued by the DISCOM as state-guaranteed DISCOM bonds at the prevailing market rates which shall be equal to or less than the bank base rate plus 0.1%.
While the article mentions as necessary for rescuing DISCOMs some of the very features actually worked into UDAY’s design, it takes no notice of what precisely UDAY’s performance has been on many of these. Let us look at the financial indicators first:
- As per UDAY’s available data for 16 states, bonds have been issued for Rs 2,32,163 crore. The target is Rs 2,69,056.35 crore. So, 86.29% of bonds to cover DISCOM debt has already been issued. The savings in interest are more than Rs 12,000 crore. While the article does note this fact, it says this does not mean the sector’s problems have been solved. The fact is, nobody claims that, but it is a very significant marker of work under UDAY.
- As per UDAY’s available data for 22 states, AT&C loss as on date stands at 25.37%, as national average. The AT&C average varies because of variously performing states and it naturally fluctuates. There may be some way to go, but reductions in average AT&C is a fact.
- As per UDAY’s data available for 23 states, the ACS-ARR Gap has come down to as low as Rs 0.26 per unit as the national average as on date.
- Also, the total number of states that have signed on to tariff revision is actually 25 of the 27.
Let us next look at UDAY’s operational indicators:
- Feeder metering (urban) stands at 100% (24 states).
- Feeder metering (rural) stands at 100% (24 states).
- DT metering (urban) stands at 53% (24 states).
- DT metering (rural) stands at 43% (24 states).
- Electricity access to unconnected households is at 81% (23 states).
- Smart metering above 500 kWH is at 3%, while smart metering between 200 and 500 kWH is at 1% (22 states).
- Feeder segregation is 59% complete (16 states).
- Rural feeder audit is 100% completed (24 states).
- Distribution of LEDs under Ujala is at 100% (22 states).
The data on UDAY’s operational progress shows that even on feeder segregation more than half the work is done in less than two years in the states for which data is available. We must remember that this is the average and progress is higher in specific states. On the other hand, the average for feeder metering is already 100% for 24 states, both urban and rural. It is true that progress on smart metering has been slower, but nothing in the data above indicates that UDAY has been a disappointment or has failed. It is a work-in-progress, with already 27 of India’s states signed up to it. In other words, the Ministry of Power’s reported claim of “encouraging results” under UDAY does not appear to be unfounded at all.
As the article has noted, the ministry said in August this year that UDAY has improved AT&C (Aggregate Technical and Commercial) losses in states by more than 1% and the ACS-ARR (Average Cost of Supply and Average Revenue Realised) Gap has shrunk by Rs 0.13 a unit.
To answer Scroll.in’s overall pessimism about India’s ability to light every household through last-mile connectivity and rural electrification, etc, the basic data should suffice:
- In rural electrification, 14,619 of 18,452 unelectrified villages have been electrified. That is, 79% of unelectrified villages have been electrified as on date.
- 26,85,24,216 LEDs have been distributed under UJALA as on date, with annual savings of Rs 13,949 crore.
- India’s rank has improved from 99 in 2015 to 26 in 2017 on the World Bank’s Ease of Getting Electricity Index.
- The Saubhagya scheme, with a total outlay of Rs 16,320 crore, looks to complete the task of last-mile connectivity, covering both rural and urban areas.
Unlike what Scroll.in would like us to believe, UDAY is not a disappointment. It is showing progress and achieving results, and we must keep in mind the wide variables among 27 states as well as the fact that the scheme was never aimed at an overnight turnaround in the fortunes of DISCOMs. In sum, as of now, UDAY seems to be a well-designed and well-placed support mechanism for DISCOMs and states.