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Uday 2.0: Govt may impose stricter penalties on non-complying discoms under new scheme

Anupam Chatterjee

With state-owned electricity discoms' financial performance worsening again after a brief spell of improvement witnessed under the Uday scheme in FY16-FY18 period, the government may impose stringent penalties on the non-compliant among these entities in the form of denial of Central funds under a revamped scheme to finance electricity infrastructure upgrade. However, the new scheme and policy, likely to be announced in the coming Budget, may fall short of instituting tripartite agreement amongst the RBI, PFC-REC and state governments to ensure discoms clear their dues to generators in time.

"Discoms will have to work out a trajectory for loss reduction and funds under the (new) scheme would be released only if the trajectories are adhered to," Union power minister RK Singh said on Monday. The scheme will subsume the existing Central government schemes for the electricity sector such as the Integrated Power Development Scheme (IPDS) and the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY).

For both IPDS and DDUGJY, 78% of budget comes from the Centre and the remaining funding is done out of states' budget.

The cumulative outlay of these two schemes (launched in FY15) is Rs 1.1 lakh crore. Additionally, the Narendra Modi government has earmarked another Rs 25,000 crore since FY14 to implement a host of schemes across the states to develop electricity transmission networks.

Sources said that the revamped scheme will have a special focus on digitisation of infrastructure. It is also expected to push discoms to increase private sector participation to achieve higher efficiency. As reported recently by FE, the Prime Mnister’s Office has recently directed the power ministry to "dismantle inefficient and burdensome monopolies and encourage investments and participation of the private sector" in power distribution.

State-run discoms’ financial losses stood at nearly Rs 28,000 crore at the end of FY19, up 88% year-on-year, in what indicated an unraveling of the Uday scheme which was meant to salvage these debt-ridden entities. Discoms in 16 states had saved around Rs 35,000 crore till FY19 as Uday mandated the state governments to take over around Rs 2.32 lakh crore of discom debts, resulting in a lowering of the interest rates to 7-8.5% from around 11-12% previously.

The Uday scheme also targeted to reduce the aggregate technical and commercial (AT&C) losses of discoms to 15% and eliminate the gap between the cost of power supply and revenue realised by FY19. Though some headway has been made, none of the targets has been met within the time lines (see chart).

According to the minister, the government is also planning to discipline unyielding discoms by putting restrictions on funding from PFC and REC - the mainstay source of capital for discoms - by tightening the prudential lending norms of these Central government lending institutions. "If a discom is making heavy losses and it has not worked out a trajectory for loss reduction then it has significant credit risk and financing from PFC and REC to such entities would be predicated on discoms reducing the losses," Singh said. Discoms’ over-dues to gencos stood at Rs 72,938 crore at the end of November 2019, up 75% on year.

The trend of rising dues to power plants continues despite the Union power ministry implementing the letter of credit (LC) mechanism since August 2019 to compel discoms to become more disciplined in meeting payment obligations.

To address the issue of irregular payments by discoms, a high-level empowered committee (HLEC) headed by then Cabinet secretary PK Sinha had proposed a model where REC and PFC would discount the receivables from discoms and make an upfront payment to power producers. If these lenders failed to recover the dues, the RBI could deduct the amount from the account of states and pay these public-sector financial institutions. "The HLEC, after deliberating the problem in depth and analysing the ground realities had found out that the tripartite agreement to be the most credible mechanism to tackle the situation of delayed payments of dues in case of default for more than six months and this is the most effective way to draw investment in the power sector and return the sector to sustainable growth path," Ashok Kumar Khurana, director general, Association of Power Producers, said.