Here's How India Wants To Help Struggling Discoms After UDAY Failure

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The central government has approved a reform-linked scheme to shore up health of the country’s debt-ridden electricity distribution companies, nearly six years after UDAY plan that failed to find a lasting solution.

The results-linked power distribution scheme—with an outlay of Rs 3.03 lakh crore—seeks to provide conditional financial assistance to discoms to improve their supply infrastructure, the government said in a statement last week. Announced in this year’s union budget, solutions would be worked out for each state differently rather than a “one-size-fits-all” approach.

The objectives are to:

  • Reduce aggregate technical and commercial losses to 12-15% by 2024-25.

  • Cut ACS-ARR gap—or the difference between average cost of supply and average realisable revenue—to zero by 2024-25.

  • Modernise discoms.

  • Improve the quality, reliability and affordability of power supply to consumers.

This result-linked financial outlay rightly recognises the need to incentivize and support discoms in improving financial viability and operational efficiency, said Vipul Tuli, chairman of FICCI Power Committee and managing director at Sembcorp Energy India Ltd. The industry, however, is waiting for tariff reforms necessary to make discoms profitable so that they can fund future investments on their own, he said.

The Narendra Modi-led administration is trying to turn around the fortunes of discoms and manage power costs. It proposed a nationwide short-term power trading mechanism where supply from generators quoting the lowest pricing gets sold first, a move that will help plants without long-term buyers.

The Electricity (Amendment) Bill 2021 to allow power consumers choose from multiple service providers, like in the case of telecom services, is likely to be introduced and pushed for passage in the monsoon session of Parliament beginning in July, Power and Renewable Energy Minister RK Singh said at the virtual Bloomberg NEF Summit.

But the previous effort under the 2016 Ujwala Discom Assurance Yojana didn’t meet its objectives. According to ICRA Ltd., discom debt has risen to nearly Rs 6 lakh again with annual book losses estimated at around Rs 75,000 crore for 2021-22.

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