Power News We love to talk!
What you make of the Union government’s Ujwal Distribution Assurance Yojna’s (UDAY’s) potential efficacy to cut state-owned power distribution companies’ (discom’s) losses depends on how you look at the picture. For, if a recent report by ratings agency CRISIL to be the basis, while the scheme will miss its target of bringing down discom losses to zero, it will succeed in reducing them by more than half.
The states that have joined the scheme will see the gap between cost and revenue recovery for every unit of electricity sold declining from 64 paise in the last fiscal to 28 paise in FY19.The agency says discoms are likely to fail to nullify losses primarily due to lower-than-expected reduction in aggregate technical and commercial losses (AT&C) and inadequate tariff hikes.
“The increase in tariff will be lower in states with a weak policy ecosystem. Delays in tariff orders, high levels of cross-subsidisation, and elections over the next two years will deter hikes in a few states in comparison to what is envisaged in the MoUs,” CRISIL said.
The Centre launched UDAY in November last year, what with discoms’ accumulated debt ballooning to R4.5 lakh crore by September 2015. The debt has not only put the lenders of discoms at risk but also banks that have lent for newly commissioned or under-construction projects.
Since its launch, discoms of 18 states have signed agreements with the Centre and their respective states. These states have committed to reducing their AT&C losses to 15% by fiscal 2019. “UDAY’s biggest differentiator as compared with previous schemes is increased accountability and the role of the states in reforming discoms. With the takeover of 75% of debt by states through equity/grant/loans, and future loss funding by states, financial linkages between the discoms and states will increase,” the report said.
States signing up for UDAY issued non-SLR bonds worth R1 lakh crore in fiscal 2016 to take over 50% of discom debt. An additional R67,000crore of UDAY bonds are expected to be issued in fiscal 2017 to take over another 25% of the debt. Discoms may issue state-guaranteed bonds for the remaining 25% of debt that will remain outstanding with them.
“We have found that Rajasthan, Haryana, Andhra Pradesh, Punjab, Chhattisgarh, Karnataka, and Madhya Pradesh will be the key beneficiaries of UDAY. While UP, Bihar, and Jammu & Kashmir will also show considerable improvement, these will continue to remain confined to the weakest quadrant due to lower-than-envisaged improvement in AT&C losses and resultant gap per unit,” the report said. “After UDAY, the discom losses of states excluding UP, Bihar, and Jammu & Kashmir are expected to decline from R22,000 crore in fiscal 2016 to R8,000 crore in fiscal 2019. For these three states, the losses are expected to marginally decline to R13,000crore in fiscal 2019 from R14,000 crore in fiscal 2016.”
For states to achieve the mandated AT&C reduction loss, CRISIL said, they will have to implement feeder and distribution transformer metering and feeder segregation. Additionally, they will have to sort out regulatory hurdles that delay tariff orders and impact the timeliness of tariff hikes. Dr. Ashok Haldia, Managing Director & CEO, PTC Financial Services says, “The improvements envisaged under UDAY wouldn’t immediately show in the form of timely payment from discoms as these companies will take considerable time to de-stress. I would say that another 6 to 12 months would tell us where the scheme is headed”.
As for offtake of power by discoms in UDAY’s wake, CRISIL said that despite an expected all- round improvement in their financial health and operational efficiency, discoms’ appetite for buying more power would remain subdued in the near term. While UDAY envisages energy demand to grow at ancompounded annual growth rate (CAGR) of 7% till FY19, the report said that this would fail to provide buyers for new capacity being commissioned.
On a positive note, with policy intervention leading to rationalisation of coal supply, increased coal production, and a new refinancing scheme like 5/25, CRISIL estimated that thermal capacity facing viability risk has come down to 40,000 MW from 46,000 MW last year. SudipSural, Senior Director, CRISIL says, “While lack of fresh long-term PPAs continues to impact generation capacities, facilitation of medium-term PPAs and corresponding coal linkages, continued focus on augmenting domestic coal production, and facilitation of open access by states can help further reduce the capacities at risk.”
- Tata Power, RDIF to explore investment opportunities in Russia Read more
- India ranks 3rd in 'Renewable Energy Country Attractiveness Index' Read more
- Wide power deficit discrepancy between NGO and govt data in UP Read more
- CLSA retains bullish stance on CESC, J Kumar Infra Read more
- Longer tax holiday, higher input costs for power players Read more
- Power utilities plan to procure 2,400 MW on long-term basis Read more
- Discoms tight-lipped on tariff hike Read more
- Govt to announce policy measures to de-stress power sector soon Read more
- Flat global carbon emissions highlight slowdown in power demand and shift in fuel mix, says GlobalData Read more
- ONGC split over booking LNG at Swan terminal Read more