UDAY Program Yet to Make a Positive Difference on the Power Sector

The positive effects of the Ujwal DISCOM (distribution company) Assurance Yojana (UDAY) on the power sector are yet to be seen. Currently, 16 states and one union territory have joined since the inception of the program. The Government of India launched the program in an effort to bring about the financial turnaround of DISCOMs in the country. But, even after a year, DISCOMs continue to struggle and in some cases their situation has worsened.

The financial health of DISCOMs has been a primary hurdle for India in scaling its power generation, and is a major reason behind power shortages and cuts, the lack of power for millions of people, inflation, high interest rates for project development, and a lack of financing in the power sector.

In November 2015, the Ministry of Power announced UDAY, a DISCOM turnaround program that targets DISCOM debt reduction. Out of the 29 states and seven union territories, only 18 states and one Union Territory gave their ‘in-principle’ approval to join UDAY, and only 16 states and one union territory signed the UDAY Memorandum of Understanding (MoU).

For the ambitious UDAY program to succeed, power tariffs need to increase across the country but, this is yet to happen, commented an official at Haryana Electricity Regulatory Commission.

“The program needs enforcement. Right now the Ministry of Power is focusing on making all the states join UDAY. Instead it should focus on strict implementation of the policies and regulations put forth under the program,” added an official at the Jharkhand State Electricity Regulatory Commission.

For UDAY to be successful, “we need a stable government.” With changing governments, policy implementation takes a backseat, stated an official at Uttarakhand Electricity Regulatory Commission.

Rajasthan has issued UDAY bonds worth Rs.284.55 billion (~$4.19 billion) and not found sufficient takers, which has worsened the situation of DISCOMs in the state, commented an official at Rajasthan Electricity Regulatory Commission. The official also said that for UDAY to be a success, “the government must enforce strict timelines and tariff hikes.”

Banks and lenders are yet to see an impact of UDAY on the solar sector and developers are lamenting that the on-ground reality of UDAY is different from that seen in the ledgers and account books. If DISCOMs are financially better off, it’s not reflected through timely payments.

Distribution companies in the states of Rajasthan, Uttar Pradesh, Uttarakhand, Jharkhand and Karnataka are still postponing signing PPAs leading to delays in project commissioning. According to DISCOMs in these states, the benefits of UDAY will take time to trickle down.

“As we have seen with many government programs, announcing a targeted policy is a good first step but successful implementation and enforcement is where the challenges are. With solar installations forecast to double next year, the financial health of DISCOMs needs to turn around sooner than later for the sector to flourish,” said Raj Prabhu CEO of Mercom Capital Group. “The industry is waiting for UDAY to start making a difference.”

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