According to Crisil’s analysis in aggregate external debt of state-owned electricity distribution companies (discoms) is set to increase to pre-Ujwal Discom Assurance Yojana (UDAY) levels by end of fiscal 2019. It had analyzed state-owned discoms in 15 states, which account for 85% of the aggregate losses.
The main reason for increase in debt of discoms is lack of continuous financial support from states due to limited fiscal headroom, lack of prudent tariff hikes and material reduction in aggregate technical and commercial (AT&C) losses.
As per MoUs signed by States under UDAY Scheme in fiscal 2016, their discoms were to initiate structural reforms by reducing AT&C losses by 900 basis points (bps) to about 15% in fiscal 2019 and also implement regular tariff hikes of 5-6% per annum. In return sate governments took over three-fourths of discom debt, thus reducing the interest cost burden.
However since debt takeover by state government, discoms enjoyed the benefit of debt reduction, but conditional structural reforms under UDAY Scheme have been slow. For instance, AT&C losses reduced by only 400 bps by December 2018 from pre-UDAY levels and average tariff increased paltry 3% per annum.
Ujjwal DISCOM Assurance Yojana (UDAY)
This was to achieved through four initiatives
In return of this, state governments were to take over up to 75%% of their respective discoms’ debt by issuing sovereign bonds to pay back lenders. Remaining 25%% of debt will be issued by discoms in the form of bonds.
The scheme is optional for the states to join. So far, 32 States and UTs have joined this scheme. West Bengal, Odisha, Delhi (UT) and Chandigarh (UT) have not joined it.