Amit notes that there is stress in power sector and government is working towards reducing that through various means. But is this change cyclical as is seen in many other industries as well, or is it permanent. As his company is primarily a Turbine manufacturer, he begins to think should they mitigate their risks by focusing on the international markets or should they diversify their product portfolios. Can we see industry consolidation though exit and M&A to reduce competitive intensity. In the short run however, how can they reduce their bidding price? He notes cost cutting and improving operational efficiency in his notebook.
Dr Arun: One of the policies I would like to talk about in detail is Ujjwal DISCOM Assurance Yojana (UDAY). UDAY is the financial turnaround and revival package for electricity distribution companies of India (DISCOMs) initiated by the Government of India with the intent to find a permanent solution to the financial mess that the power distribution is in. However it has shown mixed results.
Mr Anshul: UDAY has not been successful in reviving power distribution segment as the cumulative book losses of discoms have shown a significant increase, from Rs 151.32 billion in 2017-18 to Rs 280.36 billion in 2018-19(as of September 2019). UDAY had a promising start with financial losses coming down in FY2017 and FY2018 and improvement in operation performance parameters however many targets were not met and it added significantly to state’s financial burden
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As part of UDAY, state governments took over 75 percent of the outstanding liabilities of discoms in the form of grants or equity. According to Reserve Bank of India (RBI) report on state finances, debt of state government grew significantly due to UDAY. The debt is expected to reach Rs 52.58 trillion by the end of March 2020 or almost 25 per cent of GDP. The finances of these states were impacted due to the bond issuance, interest payments, redemptions and discoms’ loss funding.
Dr Arun: There has been incomplete compliance with the provisions of UDAY regarding takeover of losses by the state governments. State governments were supposed to provide funding of Rs 27.26 billion in 2018-19 but they funded less than half of that (according to RBI report)
The government understands the situation of discoms and has introduced reforms like smart prepaid metering. Due to mismatch between cost of supply and revenue realised from the customer, and also various schemes and subsidies provided by the state governments, the situation could not be improved. With smart meter national programme, which aims to retrofit 250 million conventional meters with smart meters, billing efficiency should improve.
Government also wants to ensure regular tariff revisions. The Appellate tribunal for Electricity has also passed an order asking the state regulators to report delays in tariff revisions. The central government is also working on second phase of UDAY scheme which would be more target driven. States should work with centre and take necessary steps to turnaround the discoms and reduce cost revenue gap.
For Latest Updates and more info, see https://www.uday.gov.in/home.php
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