The rescue plan, called Ujwal Discom Assurance Yojna or UDAY, provides “a permanent resolution of past as well as potential future issues

November 6, 2015

In a bid to rescue almost bankrupt state electricity retailers, the Cabinet on November 5 approved a scheme for rejig of Rs 4.3 lakh crore debt of the utilities besides measures to cut power thefts and align consumer tariff with cost of generating electricity. The Union Cabinet, headed by Prime Minister, approved a scheme to ease the financial crunch facing power distribution companies, or discoms, that has impaired their ability to buy electricity.

Power Minister Piyush Goyal said state governments, which own the discoms, can take over 75 percent of their debt as of September 30 and pay back lenders by selling bonds. For the remaining 25 percent, discoms will issue bonds.

The central government will ease rules to allow the states participating in the scheme to borrow more and help with the additional burden.

The rescue plan, called Ujwal Discom Assurance Yojna or UDAY, provides “a permanent resolution of past as well as potential future issues of the sector” and empowers the utilities to break-even in next 2-3 years, he said.

“This is through four initiatives – improving operational efficiencies of discoms, reduction of cost of power, reduction in interest cost of discoms and enforcing financial discipline on discoms through alignment with state finances,” he said.

Operational efficiency improvements is proposed to be brought in by compulsory smart metering, upgradation of transformers and meters to reduce electricity lost during transmission and distribution (or theft) from around 22 percent to 15 percent by 2018-19.

By the same year, the gap between average revenue realised (or user charges) and average cost of supply (or cost at which electricity is procured) will also be eliminated.