Ujwal DISCOM Assurance Yojana (UDAY)

The term “DISCOM” is an acronym for Distribution Company. These companies are basically tasked with the responsibility of electricity distribution to the consumers. DISCOMs purchase power from power generation companies through agreements known as Power Purchase Agreements (PPAs) and then supply the same to consumers.

The supply of this power will be transmitted in and around the area of that particular DISCOM’s jurisdiction. Most of these companies are run by the central and state governments. However, it was found that the majority of the companies were reeling under sizable losses. 

The main underlying cause for these large losses was that the companies failed to collect the full cost of what they actually paid for the power. The Ministry of Power, in the year 2015, came up with a turnaround strategy to improve the poor financial situation of these companies by launching the Ujwal DISCOM Assurance Yojana (UDAY).

The Ujwal  DISCOM Assurance Yojana is a centrally sponsored scheme, launched with the main objective being to ensure the financial as well as the operational turnaround of the power distribution companies (DISCOMs).

The long term vision of this scheme was to ensure an uninterrupted supply of electricity to the whole of India. It also aims to find the right balance between revenue and cost for these companies so as to ensure smooth financial and operational activity.

Objectives of UDAY

Reduction in the cost of power and associated interest costs

Most of the systems and modes of power transmission are now outdated, resulting in lesser output and higher costs to maintain the same. Technological and infrastructure upgrades are an absolute necessity in order to win the battle of reduction in the cost of power. The enhancement in the quality and efficiency of operations will further ensure that the interest costs which act as a burden are also reduced considerably.

Equipping the DISCOMs with financial discipline

UDAY actually takes on the role of a debt restructuring plan to lift the DISCOMs out of their state of misery. UDAY looks to put certain mechanisms in place so as to ensure the rationalisation of tariffs and also incremental increase in prices as and when necessary. By introducing systems and mechanisms, it aims to imbibe the DISCOMs with the value of discipline.

Enhancement of the operational efficiencies of the DISCOMs

The UDAY scheme aims to completely ramp up the levels of operational efficiency of DISCOMs through various technological and infrastructure upgrades, the installation of smart meters, ensuring that feeder separators are in place etc. It also looks to ensure the accurate collection of data and analysis of the same. UDAY also aims at installing energy-efficient bulbs, meters etc., among other things.

Work towards a sustainable business model for DISCOMs

UDAY was launched not just as a rescue plan for the DISCOMs, but as a financial restructuring plan so as to ensure that these companies have a reliable and sustainable future. Ensuring strictly that PPAs are, the introduction of market-friendly power reforms, strict disciplinary measures in place to ensure no theft of electricity are all part of the measures put in place so as to convert these loss-making units into solid, sustainable business models with profitability.

Challenges Faced by UDAY

Large Aggregate Technical and Commercial (AT&C) losses

The losses accumulated by the DISCOMs, that is, the AT&C losses, is relatively high in comparison with the target number with regard to the majority of the states. The intended target of losses was to be limited to 15%; however, in the case of most of the states, the figures read closer to 20%. Technical Losses refer to the loss due to the flow of power through the transmission and distribution systems. Commercial Losses refer to the losses racked up due to electricity theft, metering deficiencies etc.

Increase in costs

Renewable sources of energy may have their advantages in the long run, but in the present scenario, they do more harm than good. The transmission and supply of renewable energy are relatively expensive since low-cost methods haven’t been discovered yet. If one were to look in terms of cost efficiency, the low cost of coal would definitely be more appealing as compared to renewable energy. This is mainly due to the inefficiencies in the method of distribution and supply, making it a costly affair.

Not highly profitable

Considering the amount of losses racked up by the DISCOM’s, it will be a considerable amount of time before they turn profitable. Aside from this, there are interest costs, transmission costs as well as upgradation costs to be dealt with as well.

Burden on the State Governments

The burden of losses borne by these companies is to be progressively borne by the State Governments, as per the UDAY Scheme. As of 2019-20, the share of losses that the States have to bear goes as high as 50%, thus shifting a considerable burden on the states. 

Non-payment of debts

The earlier Power Purchase Agreements that were in place weren’t respected enough, and as a result, quite a few states have defaulted in their PPA obligations, thus piling up on the non-payment of debts. Due to these actions, the onus is on the Centre to regulate this and ensure that further stress is not added in this regard.

UDAY 2.0

UDAY scheme 2.0 aims to ensure the following:-

• Prompt payment by DISCOMs
• Revival of gas-based plants
• Availability of coal for the short term
• Installation of smart prepaid meters