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Government Schemes


State DISCOMs in the country have huge accumulated losses and outstanding debt. Financially stressed DISCOMs are not able to supply adequate power at affordable rates, which hampers quality of life and overall economic growth and development. Efforts towards 100% village electrification, 24X7 power supply and clean energy cannot be achieved without performing DISCOMs. Power outages also adversely affect national priorities like "Make in India" and "Digital India. In addition, default on bank loans by financially stressed DISCOMS has the potential to seriously impact the banking sector and the economy at large.

To improve the situation, a Scheme "UDAY" (Ujwal DISCOM Assurance Yojana) for financial turnaround of Power Distribution Companies has been formulated and launched by the Government on 20th November, 2015 in consultation with the various stakeholders for the financial and operational turnaround of DISCOMs and to ensure a sustainable permanent solution to the problem. The scheme UDAY envisages reform measures in all sectors- generation, transmission, distribution, coal, and energy efficiency.

The Highlights of the Scheme UDAY are as follows:

  • The scheme has been formulated and launched for a sustainable financial and operational turnaround of DISCOMs; provides permanent solutions to legacy debts of approximately Rs. 4.3 lakh crores (by FY 2014-15) and address potential future losses.
  • Empowers DISCOMs with the opportunity to break even in the next 2-3 years through four initiatives.
  • Operational efficiency improvements viz. compulsory smart metering, up-gradation of transformers, meters etc., energy efficiency measures like efficient LED bulbs, agricultural pumps, fans & air-conditioners etc. to reduce the average AT&C loss from around 22% to 15%; Elimination of the gap between ACS and ARR by 2018-19.
  • Reduction in cost of power through measures such as increased supply of cheaper domestic coal, coal linkage rationalization, liberal coal swaps from inefficient to efficient plants, coal price rationalization based on GCV, supply of washed and crushed coal, and faster completion of transmission lines.

Financial turnaround through States taking over 75% of DISCOM debt as on 30th Sept, 2015.

  • 50% of DISCOM debt to be taken over in 2015-16 and 25% in 2016-17 - reduction of the interest cost on the debt taken over by the States to around 8-9%, from as high as 14-15%. States which joined the scheme in 2016-17 took over 75% of debt in 2016-17.
  • DISCOM debt not taken over by the State shall be converted by the Banks / Fls into loans or bonds with interest rate not more than the bank's base rate plus 0.1%. Alternately, this debt may be fully or partly issued by the DISCOM as State guaranteed DISCOM bonds at the prevailing market rates which shall be equal to or less than bank base rate plus 0.1%.
  • Further provisions for spreading the financial burden on States over three years to give flexibility in managing interest payment within their fiscal place in initial years.

Note: States which are not stressed or where Power is managed through State run Power department and not through DISCOMs were allowed to join UDAY on Operational Parameters and need not take over DISCOM debt. 10 States & 1 UT joined UDAY on Operational parameters.

Provision for incentives/ disincentives for future financial performance for participating states.

  • States to take over and fund at least 50% of the losses (if any) of DISCOMs in a graded manner.
  • State DISCOMs to comply with the Renewable Purchase Obligation (RPO) outstanding since 1st April, 2012
  • States accepting UDAY and performing as per operational milestones will be given additional/priority funding through DDUGJY, IPDS and PSDF or other such schemes of Ministry of Power and Ministry of New and Renewable Energy.
  • Such States shall also be supported with additional coal at notified prices and, in case of availability through higher capacity utilization, low cost power from NTPC and other Central Public Sector Undertakings (CPSUs).
  • States not meeting operational milestones will be liable to forfeit their claim on IPDS and DDUGJY grants.

Status of participation of states and bond issuance


MOU signed so far:

Comprehensive (16 states) : Jharkhand, Chhattisgarh, Rajasthan, Uttar Pradesh, Punjab, Bihar, Haryana, J&K, Andhra Pradesh, M.P., Maharashtra, Himachal Pradesh, Telangana, Assam, Tamil Nadu & Meghalaya 

Only operational (10 states, 1 UT): Gujarat, Uttarakhand, Goa, Karnataka, Puducherry, Manipur, Sikkim, Arunachal Pradesh, Kerala, Tripura & Mizoram.

Bonds Issuance Status (Rs. 2.32 lakh crore)

15 States have issued Bonds worth Rs. 2.09 lac crores and DISCOMs have so far issued Bonds worth Rs. 0.24 lac crores. The bonds have been subscribed by Banks (Rs. 1.16 lac crores), EPFO (0.53 Lac crores), LIC (Rs. 0.09 lac crores) and others including MFs etc (Rs. 0.48 lac crores).

Performance review as on March 2017

With just over a year of its commencement, UDAY scheme is already showing encouraging results. DISCOMs are actively feeding data on to the UDAY portal and some positive outcomes have emerged.

AT&C loss

National average (all UDAY states) of AT&C loss has come down to 20.1% in FY17 from 21.1% in FY16. Total 11 states have reduced their AT&C loss from FY16 level.

Under the initiatives of UDAY, continuous focus has been given on billing and collection efficiency of Discoms. At all India level, billing efficiency has increased by ~2% from 81% in FY16 to 83% in FY17.

Power purchase cost

Power purchase cost has reduced in 6 states. At overall level, the cost has reduced from Rs. 4.20 per unit in FY16 to about Rs. 4.16 per unit in FY17.

These states have adopted various measures to optimize the input cost. Some of which are as following:

  • Andhra Pradesh, Bihar, Haryana and Gujarat have significantly increased procurement of cheaper power from Power Exchanges (IEX and PXIL)
  • Almost all the states have followed Merit Order Dispatch (MOD) methodology for power procurement and surrendered costlier power
  • Cost of generation of few plants have reduced due to reduction in use of imported coal (few state gencos of above states and few NTPC plants)
  • Few generating stations have reduced fuel transportation cost by using “All Rail Route” (e.g. Andhra Pradesh) and linkage rationalization (Haryana state plants, few NTPC plants)

Interest cost Benefits

One of the major elements incorporated to boost the financial turnaround of the distribution utilities under UDAY is the financial re-engineering of the debt of the distribution companies to eliminate the legacy burden. As stated, Governments of 16 States have taken over of around Rs. 2.08 lac cr debt of the distribution companies as per terms of UDAY MoU.  Such loans were running at interest rates of around 11-12% p.a., which shall now be serviced by the States at rates ranging from 7%-8.5%.

Further a few DISCOMs have also restructured their balance loan portion at reduced rates, which will also reduce the interest burden by at around 3%-4%. The savings accrued to DISCOMs on account of interest benefits due to above, takeover & restructuring works out to Rs. 15000 crores approximately by March, 2017.


The reduction in ACS-ARR Gap is the combined effect of savings in interest cost, power purchase cost, tariff rationalization, better billing/collection efficiency etc. and it is expected that these benefits shall continue and further improve in future and provide a sustainability to the distribution utilities.

Gap between Average Cost of Supply (ACS) and Average Revenue Realized (ARR) has reduced in 12 states. At overall level, the gap has reduced from 59 paisa per unit in FY16 to about 46 paisa per unit in FY17.

Turnaround of DISCOMs

  • While Gujarat DISCOMs are maintaining positive bottom-lines, Haryana, Chhattisgarh and Himachal Pradesh DISCOMs are on the threshold of turnaround.
  • Rajasthan DISCOMs have reduced their book loss by ~70%. DISCOMs of Andhra Pradesh, Telangana, Tamilnadu, Maharashtra, and Assam have reduced their book losses.

With increased focus on loss reduction and financial discipline, book losses are expected to come down further in coming years.

Operational highlights

  • 2,031 lakh LED bulbs have been distributed so far under the UJALA scheme which translates into annual saving of Rs. 10,500 crore and avoidance of 21.3 million tons per annum of carbon emission
  • Against urban feeder metering target of 2,137 feeders, 4,113 feeders have been metered. In rural areas, 8,669 feeders have been metered against target of 10,744. 87,662 rural feeders are being audited against target of 50,754 feeders. This will help DISCOMs to curb AT&C losses.
  • 91 lakh domestic households have been electrified post UDAY. AP, Gujarat, Karnataka, Maharashtra, Manipur, Assam and Uttarakhand have exceeded UDAY targets for household connections. Bihar alone has achieved 40 lakh domestic connections.
  • During UDAY period, Renewable Energy capacity has increased from 42,849 MW in March 2016 to 57,260 MW in March 2017

Reduced trend in State subsidy dependence:

  • Twelve (12) Discoms from seven (8) states have reduced subsidy dependence (subsidy booked/Total revenue) from last year. Till March 2017, major improvements have been noticed from APEPDCL (from 10% to 2%), DVVNL, UP (30% to 17%) and SBPDCL, Bihar (from 46% to 40%).
  • Marginal improvements (1-3%) have been noticed from Chhattisgarh, Rajasthan, Karnataka and other UP Discoms.
  • With increased sales to industrial and non-domestic segments and moderate cross-subsidy, subsidy dependence of the states may reduce further.     


REC, had in September-2015, around Rs. 78,000 crores of DISCOM debt (which was covered under UDAY) and so far it has received back Rs. 43,000 crores during 2015-16 (~9000 cr) and 2016-17(~ 34000 cr). Some DISCOMS have not gone for financial restructuring or have gone for partial restructuring. The DISCOM 25% part of approx. Rs. 10,000 crores may be received back or re-priced.

REC provides debt for a fairly long tenure and a strategic program like UDAY which essentially addresses the core issues of the sector is surely to its advantage. The value grows and investors confidence also grows when the sector become stronger.

UDAY has also provided REC with opportunities to participate in the DISCOMs rebuilding process. There are areas like loss reduction, smart metering financing, smart grids, green energy infrastructure where REC or its subsidiaries are playing a large role.

A paradigm shift is taking place in power sector operations. More and more renewable energy projects, which provides clean energy is bound to come which will also require green corridor. While conventional energy will play its part, our business opportunities will increasingly come from the Renewable sector and strong distribution utilities will be able to weather the transformation. So here too the Power sector FIs like REC will find implementation of UDAY very useful.



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Page Last Updated At: 02/06/2023 - 09:02 PM
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