What is UDAY scheme impact?

If the state governments still wanted to keep electricity subsidies, they should give these to the intended beneficiaries via the direct benefit transfer (DBT) route, rather than burden the distribution companies (discoms) by making them the transfer agents, power minister RK Singh said. In an exclusive interview with FE, the minister said one reason for the worsening of the aggregate technical and commercial (AT&C) losses in some states and many others failing to meet the targets set under the UDAY scheme for reducing these losses is constant delays in disbursal of subsidies by state governments. Delayed receipts reflect adversely on AT&C figures because it deflates the revenue against the units of electricity sold.

Singh asserted that there would be no going back on the government’s plans to inculcate discipline in discoms. Cross subsidy would be capped at 20% effective January 2019 and discoms would be denied compensation for AT&C losses above 15% in tariff orders from the next fiscal,the minister said, adding that, starting FY20, gratuitous load-shedding would invite penal action.

“The perennial problem with the power sector has been the lacuna between the laws and their practical implementation,” Singh said. “I have conveyed my resolution to rigorously implement the existing laws, to the states and the regulators,” he added. A policy draft that spells out these measures is expected to be considered by the Cabinet approval soon (some of the regulatory changes proposed require amendments to the Electricity Act, 2003), the minister said. The idea is to introduce the changes in the monsoon session of Parliament.

Under the UDAY scheme for revival of discoms, these entities are mandated to progressively reduce their AT&C losses to 15% by FY19. However, only seven states/UT reported meeting their respective AT&C loss targets for FY17; as reported by FE earlier, of late, there is also reversal of the loss reduction trend in some states. The power ministry’s plan to cap cross-subsidy — additional tariffs paid by industrial and commercial consumers to subsidise households and farmers — at 20% could reduce the cost of electricity for businesses by up to 14-20%.

At a time when raw material costs are high and pricing power is subdued, this could help companies increase earnings. Among the states, Tamil Nadu keeps the cross-subsidy at the highest level of 60%, while in Uttar Pradesh it is around 40%, one of the lowest.
Limiting 15% AT&C loss for tariff calculation could incentivize discoms to ramp up their efforts to cut theft and pilferage. As per industry estimates, in every percentage point change in pan-Indian AT&C loss is equivalent to about Rs 4,500 crore.

Therefore, if for instance AT&C losses in FY20 comes out to be 25%, the discoms would have to bear a heavy burden of Rs 45,000 crore if the tariff orders don’t such losses above 15%. The reported national average AT&C losses are around 23% now, although there are wide variations across discoms. States with higher AT&C losses include Jharkhand (39.3%) and Bihar (38.4%). The aggregate book losses of state-run discoms in the country were Rs 50,907 crore in FY16.

In fact, the continued indiscipline among discoms is not because of lack of legal provisions to crack down on them; the problem has been lax implementation of the provisions, given the sector’s political patronage. The Electricity Act, 2003 mandates the gradual reduction of cross subsidy charges and the 2016 tariff policy talks about bringing down these charges to 20%.

There have been huge delays in release of subsidies (meant for consumers) to discoms by the state governments. Chhattisgarh discom, for example, is awaiting about Rs 1,800 crore from the state government out of the total booked subsidy of Rs 3,000 crore. Apart from the subsidy dues of Rs 5,000 crore, Punhab discom is yet to receive Rs 1,200 crore of pending payments from various government departments. There is a “high amount” of dues to be recovered by the Uttar Pradesh discoms from local bodies and power looms.[Courtesy:Financial Express]