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UDAY: Discoms cut down on fresh borrowing

Anupam Chatterjee
uday, power sector, power industry

State-run electricity distribution entities (discoms), which had saved a substantial Rs 34,000 crore on interest costs due to the UDAY scheme in the two years ended December 2018, seem to be on a belt-tightening mode. According to data reviewed by FE, fresh borrowings by discoms of 12 major states in the 18 months ended Match 31, 2018 was only Rs 1.2 lakh crore, one-fifth lower than anticipated by the Union power ministry.

Borrowings were expected to be higher given these discoms’ combined accumulated losses of Rs 66,436 crore (which is usually financed entirely via fresh borrowings) during the period and the allowed working capital limit of Rs 87,595 crore (banks and financial institutions could lend only 25% of a discom’s revenue in the previous year as working capital).

States reluctance to fund losses of discoms is also said to be a reason for distribution companies cutting down on borrowings, as they are unsure of sovereign backing for post-UDAY losses. On a pan-India basis, discoms continue to lose 35 paisa on every unit of electricity sold (ACS-ARR gap), as they failed to meet the UDAY target to eliminate the ACS-ARR by FY19.

The state governments having taken over the initial debt as part of restructuring are now reluctant to take on the subsequent years losses, Kameswara Rao, partner, PwC, told FE. While the central schemes fortunately meet their capital expenditure needs, the operating losses will hurt the discoms ability to maintain viability.

Of course, reining in of costs of electricity generation at state-owned power plants, UDAY-enabled tariff hikes and digital billing/collection have contributed to higher revenue generation for discoms. The UDAY states have already completed 100% feeder metering in urban and rural areas. An improvement of 1% billing efficiency leads to additional revenue of about `5,400 crore across India.

When the 12 states mentioned above signed up for the UDAY scheme, the power ministry estimated the annual savings in interest cost to their discoms to be around Rs 10,048 crore (on account of state’s take over of bulk of the debt and reduction in interest rates on the balance debt).

According to a power ministry presentation reviewed by FE, discoms with the highest borrowings in the aforementioned 18-month period are Uttar Pradesh (Rs 22,874 crore), Madhya Pradesh (Rs 9,331 crore) and Rajasthan (Rs 8,078 crore).

Also read: Rs 42k-cr burden: Discoms dues to power cos rise 20%

A power ministry official told FE on condition of anonymity that the figures submitted by the states include loans from banks and money raised through bonds. According to the UDAY norms, states were to take over losses of discoms in a graded manner (0% in FY16; 5% in FY17; 10% in FY18) while the balance losses were to be financed through bonds backed by the state government guarantee. This has placed significant restraint on the discoms’ fiscal flexibility as lenders were not allowed to provide fresh short-term loans to them for financing losses.

It is, however, pertinent to note that discoms’ belt-tightening comes along with big delays in clearing their dues to gencos. The outstanding dues to 17 power generating companies increased 18% annually to `41,707 crore at the end of February.