Punjab Joins “UDAY” Scheme; becomes the 7th state to join the Scheme

Punjab Joins “UDAY” Scheme; becomes the 7th state to join the Scheme

In a significant move, another important state—Punjab has joined the UJWAL Discom Assurance Yojana (UDAY)—the Central Government’s Scheme that aims to reduce the interest burden, reduce the cost of power, reduce power losses in Distribution sector, and improve operational efficiency of DISCOMs.

As a result, the overall net benefit that will accrue to state is estimated at Rs 5,475 crores.

Under UDAY, seven states have signed MoU till date. The combined DISCOM debt that would be restructured in respect of these states is around Rs.1.6 lakh crore, which is approximately 37% of the total outstanding DISCOM debt of Rs.4.3 lakh crore as on 30th September, 2015.

A Memorandum of Understanding (MoU) under the scheme UDAY was signed on March 4th between the Centre (Government of India), the State of Punjab and the Punjab State Power Corporation Limited (PSPCL) which takes care of the power distribution activity of Punjab.

The signing ceremony was held in the presence of the Union Minister of State for Power (IC) Piyush Goyal and Deputy Chief Minister of Punjab, Sukhbir Singh Badal.

Minister Goyal noted that the Punjab will highly benefit through UDAY especially the state’s farmers and the industrialists. He also assured that the Power Ministry is in discussion with the Punjab Government about replacing all old water pumps with the improved, technologically advanced and energy efficient water pumps in the state.

On his part, Badal appreciated the Power Minister for taking India from being power deficit country towards power surplus country and said that UDAY will be tackling total discom debt of Rs.20838 and thus revive the power sector of the state.

By signing the MoU, the Government of Punjab agreed to take over the debt of the DISCOM gradually. The state government would take over Rs 15,628 crore of DISCOM debt, being 75% of the total DISCOM debt of Rs 20,838 crore outstanding as on September 30,2015, as envisaged in the scheme.

The scheme also provides for the balance debt of Rs 5,210 crore, to be re-priced or issued as State guaranteed DISCOM bonds, at coupon rates around 3% less than the average existing interest rate. The annual saving in the interest cost to the State would be around Rs.625 crore on account of restructuring of the DISCOM debt.

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Besides trying to support the DISCOM financially, the MoU paves way for further improving operational efficiency of the already efficient DISCOM.

Through compulsory Distribution Transformer metering, consumer indexing & GIS mapping of losses, upgrade/change transformers, meters etc., smart metering of high-end consumers, feeder audit etc. AT&C losses and transmission losses would be brought down, besides eliminating the gap between cost of supply of power and realisation.

The reduction in AT&C losses and transmission losses to 14% and 2.5% respectively is likely to bring additional revenue of around Rs.1600 cr. during the period of turnaround.

The above measures would also help improve the rating of the DISCOM, which would help them in raising cheaper funds for their future capital investment requirement. This is expected to provide interest cost saving of around Rs.60 crore to the DISCOMs.

While efforts will be made by the State Government and the DISCOM to improve the operational efficiency of the DISCOM, and thereby reduce the cost of supply of power, the Central government would also provide incentives to the DISCOMs and the State Government for improving Power infrastructure in the State and for further lowering the cost of power.

The Central schemes such as DDUGJY, IPDS, Power Sector Development Fund or such other schemes of MOP and MNRE are already providing funds for improving Power Infrastructure in the State and additional/priority funding would be considered under these schemes, if the State/DISCOMs meet the operational milestones outlined in the scheme.

The State shall also be supported through additional coal at notified prices and in case of availability through higher capacity utilization, low cost power from NTPC and other CPSUs. Other benefits such as coal swapping, coal rationalization, correction in coal grade slippage, availability of 100% washed coal would help the state to further reduce the cost of Power.

The State would gain around Rs.1250 crore due to these coal reforms.

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Demand Side interventions in UDAY such as usage of energy-efficient LED bulbs, agricultural pumps, fans & air-conditioners and efficient industrial equipment through PAT (Perform, Achieve, Trade) would help in reducing peak load, flatten load curve and thus help in reducing energy consumption in the State of Punjab.

The gain is expected to be around Rs.690 crore.

An overall net benefit of approximately Rs 5,475 crore would accrue to the State by opting to participate in UDAY, by way of savings in interest cost, reduction in AT&C and transmission losses, interventions in energy efficiency, coal reforms etc. during the period of turnaround.

The ultimate benefit of signing the MOU would go to the people of Punjab. Reduced levels of transmission and AT&C losses would mean lesser cost per unit of electricity to consumers. Further, financially and operationally healthy DISCOM would be in a position to supply more power. Higher demand for power from DISCOM would mean higher PLF of Generating units and therefore, lesser cost per unit of electricity which would again mean lesser cost per unit of electricity to the consumers.

About UDAY:

The Ujwal DISCOM Assurance Yojana (UDAY) was launched by the Government of India on 20-11-2015 for operational and financial turnaround of State owned Power Distribution Companies (DISCOMs).

The Scheme aims to reduce the interest burden, reduce the cost of power, reduce power losses in Distribution sector, and improve operational efficiency of DISCOMs.

Under the UDAY scheme, State governments take over 75 per cent of the debt of the distribution utilities. This is then issued as non-SLR (statutory liquidity ratio) bonds. The remaining 25 per cent of debt with electricity distribution utilities is also refinanced through Stategovernment-backed DISCOM bonds.

So far, 17 States have given their ‘in-principle’ approval to join the Scheme UDAY. Out of these, the States of Chhattisgarh, Bihar, Jharkhand, Gujarat, Rajasthan and Uttar Pradesh have already signed MoUs under UDAY.

The Scheme incentivizes the States by exempting State takeover of DISCOM debts from Fiscal Responsibility and Budget Management (FRBM) limits for two years; increased supply of domestic coal; coal linkage rationalization; liberally allowing coal swaps, allocation of coal linkages to States at notified prices and additional/priority funding in Schemes of Ministry of Power and Ministry of New & Renewable Energy, if they meet the operational milestones in the Scheme.

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Participating States along with the DISCOMs have to enter into MoU with Government of India and take over 50% of outstanding debt as on 30-09-2015 by 31st March, 2016.

Power, coal and RE minister Piyush Goyal recently said the Finance Ministry has given permission to Uttar Pradesh, Rajasthan, Jharkhand and Chhattisgarh to issue the bonds as part of the Ujwal DISCOM Assurance Yojana (UDAY).

“In the case of four States, the Ministry of Finance has already approved the issuing of certain amount of bonds. They are in dialogue with the Reserve Bank of India to carry that process forward,” the minister said.

“The Ministry of Finance and the RBI are working out the mode of these bond issues along with the States. Some may want to offer it to the market, some banks want to take it up themselves without offering it to the market because the pricing is quite attractive, some States want to offer it to LIC and provident funds,” he added.

Jharkhand, Chhattisgarh, Rajasthan and Uttar Pradesh account for around ₹1.5 lakh crore or about 35 per cent of the outstanding loans of State electricity distribution utilities in the country.