In 2015, the Government of India (Ministry of Power) launched the UDAY Scheme with the objective of aiding operational and financial turnaround of Power Distribution Companies (DISCOMs) owned by any state. The scheme was designed to address the financial distress faced by DISCOMs and improve their operational efficiency. Initially targeted for four years, the scheme was extended with ‘UDAY 2.0’ under the Union Budget 2020-21. Recently, the Maharashtra State Electricity Distribution Company Limited (MSEDCL) faced challenges in achieving its targets under the UDAY Scheme. The company witnessed an increase in AT&C losses due to poor collection from agricultural consumers and various state government departments. Consequently, the primary objectives of achieving financial and operational turnaround were not fully realized. The Government has been urged to clear all electricity dues of MSEDCL from departments and local bodies promptly. Additionally, expeditious completion of DT metering and feeder segregation is recommended to reduce AT&C losses.
Need for UDAY Scheme
India’s DISCOMs have been grappling with accumulating losses and outstanding debts due to supplying electricity at tariffs lower than cost. The financial stress on these utilities has resulted in inadequate power supply at affordable rates, hampering overall economic growth and development. Inefficiencies in power distribution, such as transmission and distribution losses, have further exacerbated the financial situation of DISCOMs. The UDAY Scheme was introduced to address these issues and reduce transmission losses.
Key Objectives of the UDAY Scheme
- Reducing AT&C Losses: The scheme aimed to reduce the aggregate technical & commercial (AT&C) loss from around 22% to 15% by 2018-19, enhancing the financial health of DISCOMs.
- Improving Operational Efficiency: The scheme focused on ensuring compulsory smart metering, upgrading transformers, and adopting energy-efficient measures like promoting LED bulbs.
- Reducing Power Costs and Interest Burden: By taking over a portion of DISCOMs’ debts, the scheme aimed to lower their interest burden and power costs.
- Encouraging State Participation: The scheme provided incentives to states to actively participate in its implementation, promoting reform measures.
Achievements of UDAY Scheme
- Increased State Participation: A significant number of states joined the UDAY Scheme, leading to improvements in the liquidity situation of DISCOMs and enhancing power supply.
- Reduction in AT&C Losses: Participating states witnessed a reduction in AT&C or distribution losses, contributing to the financial turnaround of DISCOMs.
Challenges Faced by the UDAY Scheme
- Persistently High AT&C Losses: Despite improvements, some states still face AT&C losses of over 40%, indicating the need for sustained efforts to achieve the desired targets.
- Impact of Renewable Energy: The rising share of renewable energy in the distribution system has led to the displacement of low-cost coal, affecting the average cost of supply.
- Bonds and Financial Institutions: UDAY bonds issued by states have not proven profitable for banks and financial institutions, resulting in losses for them.
- Financial Strain on States: The onus placed on states to manage the situation has strained their finances, presenting additional challenges.