Dismal DISCOM (distribution company) credit profiles due to
high debt, heavy losses and poor operational efficiencies affects every aspect
of the Indian power sector and is directly responsible for large populations
without access to power, regular power cuts and the inability to purchase power
To rectify these issues the government launched the Ujwal
DISCOM Assurance Yojana (UDAY) in November 2015, a program aimed at financial
turnaround and revival of electricity distribution companies in India to rework
the Rs.4.3 trillion (~$64 billion) debt of utility distribution companies
program comprises of four major initiatives: improving operational efficiencies
of DISCOMs, reducing the cost of power, reducing interest costs of DISCOMs, and
enforcing financial discipline on DISCOMs through the alignment with state
finances. By becoming UDAY signatories, state governments are to take over 75
percent of their respective DISCOM debt and pay back lenders through the sale
of bonds. DISCOMs are supposed to issue bonds for the remaining 25 percent of
Twenty-two states have joined the UDAY program so far,
but none of the DISCOMs have yet shown marked improvement. The deadline for
joining the UDAY program has been extended to March 31, 2017. Half of the
DISCOM loan transfers to respective state governments are expected to happen by
this date with another 25 percent to be transferred by FY 2018. The program has
the right intentions, but implementation and enforcement has been slow.
The successful implementation of the UDAY program
remains vital for the financial health of DISCOMs. However, its success hinges
upon participating state’s
willingness and ability to adhere to key operational milestones, reducing
overall costs of power by sourcing power through an optimal mix of generation
sources and building adequate intrastate transmission capacity, improving sustainability
of DISCOMs by moving to cost-reflective tariff regime (quarterly and monthly
automatic fuel adjustment), supporting DISCOMs through timely payment of
subsidies, and proactive resolution of other critical issues such as lowering
cross subsidization in power tariffs to boost demand and accurate determination
of aggregate technical & commercial (AT&C) losses.
OVERALL PROGRAM ACHIEVEMENTS:
Rajasthan is the only state that has reduced the Average
Cost of Supply (ACS)-Average Revenue Realized (ARR) gap. The gap has decreased
from Rs.1.68 (~$0.025)/kWh in FY 2015-16 to Rs.0.83 (~$0.012)/kWh during the
first half of FY 2016-17 (on an input energy basis).
Among DISCOMs from the northern states of India, Haryana’s Dakshin Haryana Bijli Vitran Nigam (DHBVNL)
made a profit of Rs.790 million (~$11.799 million) in the first half of FY 2017,
against a loss of Rs.4.72 billion (~$70.5 million) in FY 2015-16.
In total, 15 UDAY signatories have filed a tariff petition
Rajasthan, Bihar and Punjab are three participating states
that have reduced their average cost of power - Rajasthan by 12.83 percent,
Bihar by 12.25 percent and Punjab by 7.83 percent.
The Manipur DISCOM, MSPDCL, has installed pre-paid metering
to reduce outstanding consumer debts, energy theft and improve billing
efficiency. The revenue collection has gone up from Rs.886.1 million (~$13.235
million) in FY 2012-13, a monthly average of Rs.73.8 million (~$1.102 million)
to Rs.1.75 billion (~$26.28 million) in FY 2015-16, almost double the monthly
average to Rs.146.6 million (~$2.189 million).
January 27, 2017, bonds worth Rs.1,830.84 billion (~$27.346 billion) have been
issued by the participating states at reduced rates of interest. Despite these achievements,
the program has not been as successful as expected.
How Initial States
14 states of Jharkhand, Chhattisgarh, Rajasthan, Uttar Pradesh, Gujarat, Bihar,
Punjab, Jammu and Kashmir, Haryana, Uttarakhand, Goa, Karnataka, Manipur and
Andhra Pradesh were the first to sign Memorandums of Understanding (MoU) under
UDAY program. Of these, only four states, Gujarat, Uttarakhand, Chhattisgarh,
and Maharashtra, have achieved a reduction in AT&C losses - Gujarat down to
13.64 percent from 16.15, Uttarakhand down to 33.25 percent from 35.41, Chhattisgarh
down to 26.66 percent from 27.33, and Maharashtra down to 20.25 percent from
20.59, respectively during April-September, 2016.
So far, nine states have issued UDAY bonds totaling Rs.1,600 billion (~$24
billion). The interest on the bonds is putting pressure on the
budgets of state governments, which in turn will negatively affect budgetary
allocation for development in other areas. Keeping this in mind for the initial
states to join UDAY, an expected break-even ceiling of 2020 has been established
for some states, stated an official at MNRE. We cannot expect to see large-scale
changes before then. States facing significant challenges, such as Uttar Pradesh,
Jharkhand, Bihar, and Haryana will be able to eliminate the gap by FY 2020.
However, states like Chhattisgarh and Rajasthan, where the accumulated losses
are due to lack of tariff increases in line with cost escalations, are expected
to witness faster turnarounds - by 2018, added the official at MNRE.
What Project Developers
Since solar project developers have been directly affected
by poor DISCOM financials in the form of late payments and curtailment, we
asked a few developers if they are seeing any signs of progress on the ground
when dealing with DISCOMs.
Curtailment issues have subsided for the time being, but can
always resurface. The program talks about debt restructuring, but a major part
of the debt is still not addressed and there is a lack of interest to purchase
bonds issued by states, commented a developer.
At least 15 states had joined UDAY initially. Out of these,
DISCOMs in no more than five or six states have shown a positive turnaround. During
the timeframe since the initial states joined the program, at least more than
10 states should have shown a positive decline in AT&C losses, stated another
Only one out of the more than 40 DISCOMs have shown a profit
since the inception of the UDAY program - that speaks volumes about the success
[or lack thereof], stated another developer. “States
are issuing bonds, but are they finding takers?” questioned
Although Jharkhand was one of the initial states to join, the
state DISCOM is still not ready to sign power purchase agreements (PPA) for
solar projects, stated another developer.
See Slow but Steady Progress
Currently, the states of Haryana, Gujarat, Bihar, Punjab,
and Rajasthan have fulfilled close to 30-45 percent of the commitments made
under the UDAY program, stated a MNRE official. Eight states including, Bihar,
Uttar Pradesh, Jharkhand, Chhattisgarh, Goa, Uttarakhand, Rajasthan, and Andhra
Pradesh have shown a decline in distribution losses, which is a big positive,
added the MNRE official.
The UDAY program is a revival plan, not just a bailout
package, and it takes time to make DISCOMs robust so that they do not fall
under heavy debt again. It’s not
that there has been no progress. Developers want a fast rollout of packages and
benefits, but they should understand the enormity of the work at hand. Progress
is slow, but there is progress, stated another MNRE official.
There has been a positive reduction in cost of power in
states that are more dependent on thermal power. States like Bihar and Punjab
where thermal power is the mainstay, have shown a decrease in the cost of power
due to cheap domestic coal and this is a result of UDAY, stated an official at
North Bihar Power Distribution Company Limited (NBPDCL). Bihar joined UDAY program
at the right time and we are seeing some positive changes. The program has
given hope to the distribution sector in an agrarian and industrially backward
state like ours, stated an official at South Bihar Power Distribution Company
Limited (SBPDCL). In Bihar, we are using new billing software to help reduce
AT&C losses and electricity theft is a major issue for DISCOMs in the state,
added the official at NBPDCL. The state government has also issued bonds worth Rs.23.32
billion (~$348.32 million).
like Uttar Pradesh, Bihar, and Jharkhand need to invest in the transmission and
distribution network, implement feeder separation programs and improve
metering, billing and collection efficiency in order to reduce AT&C losses
meaningfully. All these are costly affairs, hence the pace of turnaround is
sometimes slower than expected, stated an official at Uttar Pradesh Power
Corporation Limited (UPPCL).
The government is strengthening the transmission network and
is working towards reducing coal price. Through the electrification program the
state is trying to lessen incidents of electricity theft by connecting more
households to the grid, stated an official at Uttarakhand Power Corporation
In Haryana, positive results have already been seen; DHBVNL
is making a profit. The state is working to cut down AT&C losses and
inclusion of large parts of the state into the National Capital Region has
helped, stated an official at Haryana Electricity Regulatory Commission (HERC).
Electricity is reaching new areas in the state due to better grid
infrastructure which has also contributed to the state DISCOMs improved
finances, added the HERC official.
Cheap coal has helped Punjab, stated an official at Punjab
State Power Corporation Limited (PSPCL). In addition, payment of pending
electricity bills by government departments and organizations in the state has
helped, added the PSPCL official. Smart-metering is also underway in the state.
Our state has issued the largest number of bonds, both in
terms of bonds issued directly by state government and by state DISCOMs, stated
an official at Ajmer Vidyut Vitaran Nigam Limited. One other practice that is
helping is cutting power to areas with high AT&C losses, this allows us to
sell electricity to regions where payments are made timely. Payment of state
government bills has helped, stated an official at Jaipur Vidyut Vitaran Nigam
Limited. In Rajasthan, we have implemented 100 percent feeder and consumer
metering as well as asset and consumer mapping. All of this has helped, stated
an official at Jodhpur Vidyut Vitaran Nigam Limited.
Loss reduction targets at the sub-division level and
distribution of responsibility amongst the government departments to achieve these
loss reduction targets has helped. We have cut down AT&C losses and Gujarat
DISCOMs are amongst the best in India, stated an official at Paschim Gujarat
Vij Company Limited (PGVCL). Improved efficiency of thermal power projects has
also helped, added the PGVCL official.
Implementation of DDUGJY program in mainly tribal Jharkhand
has helped the state, said an official at Jharkhand Bijli Vitran Nigam Limited
(JBVNL). The AT&C losses have been brought down to close to 40 percent, but
massive grid infrastructure [overhaul] needs to be done in the state to connect
more consumers to the grid and help the DISCOM generate revenue, added the
We have started performance monitoring and management and
the feeder improvement program for network strengthening and optimization is
underway. The recently announced demonetization also helped as huge amounts of
revenue was recovered through payments of unpaid power bills, stated an
official at Uttar Pradesh Power Corporation Limited (UPPCL). We have also
brought down intra-state transmission losses from above five percent to below five
percent, which is an achievement for a state of UP’s size, added the UPPCL official.
In Goa, we are just focusing on the operational turnaround
as the state had negligible DISCOM debt. Through proper monitoring, billing and
collection efficiency has risen in the state, stated an official at Electricity
Department of Goa.
Pradesh has implemented a smart metering program and through DDUGJY, the number
of people connected to the grid has increased. The state is also focused on
changing the energy supply pattern in the agricultural sector with the
replacement of older pumps with more energy efficient pumps to help cut down
bills and make power available for other regions. Through an increase in
billing and collection efficiency, the state is witnessing a positive
turnaround of its DISCOMs. Currently, both of the DISCOMs in Andhra Pradesh are
amongst the best in India, behind Gujarat, said an official at Eastern Power
Distribution Company of Andhra Pradesh Limited.
Though project developers and power producers are not
seeing an immediate turnaround or benefits, there is confidence among state and
central government officials that things are headed in the right direction. With
renewable energy - especially solar - forecast to be installed in record
numbers over the next five years, DISCOM financials need to get turned around
sooner rather than later, without which it will become impossible to achieve India’s goal of installing 100 GW of solar and 175 GW of
renewable energy by 2022,”
said Raj Prabhu, CEO of Mercom Capital Group.