UDAY

Ujawal Discom Assurance Yojana

A Brief Introduction about the
Scheme, its Key Features &
Possible Impacts
Presented By:
Himanshu Jadaun
Ranmal Kachhawah
Ravi Bhati
Outline of Presentation
Power Value Chain

Status of Distribution Utilities

UDAY Scheme

Possible Impacts of UDAY Scheme

Power Value Chain

• Distribution Sector is the Revenue Creator for the entire

Power Value Chain
• Distribution Sector represented by Distribution
Companies (Discoms)
• DISCOMs are seen as the ‘Weakest Link’
Status of Discoms - Financial
• Accumulated losses & debt has ballooned in the last few years
▫ Accumulated Loss ~ Rs. 3.8 Lakh Crore (Mar 15)
▫ Total Loss in last 6 years ~ Rs. 3.66 Lakh Crore
76877 71690
64060 60000
51971
41558

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Discom Losses (Rs Crore)
Source: Audited DISCOM Accounts
Status of Discoms - Operational
Billing Efficiency (%) Collection Efficiency (%)
AT&C Losses

99 95 98 96 97
91
82 85
77 79
73
64

34 38
25 22
18 19

West South North North East East All India

Source: Audited DISCOM Accounts
UDAY Scheme
• Objective – To improve the operational and financial
efficiency of the State DISCOMs.
• Four Main Pillars
▫ Improving operational efficiencies of DISCOMs;
▫ Reduction in cost of power
▫ Reduction in interest cost of DISCOMs
▫ Enforcing financial discipline on DISCOMs through
alignment with State finances.
UDAY Scheme

Pas
Present Future
t

Operational
Scheme for
Efficiency Future
Financial Lower Cost Budgetary
& Quarterly Bank
Turnaroun of Power Discipline
Tariff Lending
d
Increase
UDAY – Scheme for Financial Turnaround
• States to take over 75% of DISCOM debt as on 30th September 2015 – 50%
in FY16 & 25% in FY17.
▫ Principal debt taken over will not be included in fiscal deficit of State; Interest to
be serviced within FRBM limits
▫ Debt will be taken over in priority of debt already due, followed by debt with
highest cost
▫ Debt will include DISCOM bonds committed to be taken over by the State as part
of FRP 2012 including bonds already taken over in 2015-16
• States will issue non-SLR bonds
▫ Maturity period of 10-15 years, Moratorium on principal up to 5 years.
▫ 10 year Bond Pricing: 7.92% (as per last RBI auction of State SDLs) + 0.25%
spread for non-SLR status on semi-annual compounding basis (market driven,
subject to cap of 10 year G-Sec + 50 + 25 bps)
UDAY – Scheme for Financial Turnaround
• Transfer of bonds proceeds to DISCOM by State will be as grant with an
option to spread the grant over three years
▫ Further relaxation by 2 years for high debt States like Raj and TN
▫ Up to 25% of the grant can be given as equity
• Residual DISCOM debt to be converted into bonds to be offered to market
at a likely rate of State Bond + 0.2%.
▫ If not converted into bonds, Banks can lend at < Base rate + 0.1%
• DISCOMs to comply with the Renewable Purchase Obligation (RPO)
outstanding since 1st April, 2012
▫ Clear large number of RPOs with developers
▫ Impetus to clean energy markets
 UDAY – Financing of Future Losses and
Working Capital
• Loss financing only as per loss trajectory finalized by MoP with States
▫ Only through DISCOM bonds backed by State guarantee
▫ Previous year’s actual losses will be used for calculation
• Working capital loan will only be allowed up to 25% of the DISCOM’s
previous year’s annual revenue
• Banks / FI will not advance short term debt to DISCOMs for financing
losses
Year FY 16 FY 17 FY 18 FY 19 FY 20 FY 21

Previous
Year’s
DISCOM 0% of the 0% of the 5% of the 10% of the 25% of the 50% of the
loss to be loss of FY loss of FY loss of FY loss of FY loss of FY previous
taken 15 16 17 18 19 year loss
over by
State
UDAY – Improving Operational Efficiency
Activity Benefit

Enabling provision for quarterly

Regular tariff Easier to implement and absorb
revision to mitigate sudden cost
revisions by consumers
increase burden

Compulsory feeder and Ability to track losses at the

Improving billing Distribution Transformer (DT) feeder and DT level for
efficiency through metering by States corrective action
metering &
Tracking of losses Consumer Indexing & GIS Identification of loss making
Mapping of losses areas for corrective action
Upgrade or change transformers, Reduce technical losses and
meters etc. minimize outages
Infra augmentation
& Smart Metering Smart metering of all consumers
Tamper proof and allow remote
consuming above 200 units /
reading
month
UDAY – Improving Operational Efficiency
Activity Benefit

Awareness campaign against

Enhance public participation to
Improving theft to ensure “honest do not
reduce power theft
collection pay for dishonest”
efficiency
through public
participation Assure increased power supply in Encourage local participation to
areas where AT&C losses reduce reduce losses

Demand Side Management

Reduce peak load and energy
(DSM) with energy efficient
consumption
Demand Side equipment
Management to
improve
Energy-intensive industries achieve
efficiency
PAT(Perform, Achieve & Trade) reduction in specific energy
consumption(per unit production)
UDAY – Reduce Cost of Thermal Power
• Centre Level Initiatives
▫ Increased supply of domestic coal – 20,000 Cr
▫ Coal linkage rationalization – 6,000 Cr
▫ Coal swaps from Inefficient to efficient plants and plants situated away
from mines to pithead plants – 10,000 Cr
▫ Coal price rationalization based on GCV
▫ Faster completion of delayed transmission lines
▫ New transmission lines expedited planned for 2030 requirement
• State Level Initiatives
▫ Prospective power purchases through transparent bidding
▫ Improving efficiency of State Gencos through NTPC
UDAY – Impact – Power Sector – ICRA Study
• Significant positive for the power sector.
▫ Aggregate relief to Discoms ~ Rs. 880 billion per year by FY 19
 Reduction in losses ~ Rs. 0.95/unit on an all India basis
▫ Should enable Discoms to break-even over the next 3-4 year period.
• Key components of savings as estimated by ICRA are as under:
▫ Take over of debt by state Governments; Savings in interest costs ~ Rs. 460 billion
 Relief in cost of supply ~ Rs. 0.50/unit on all India basis by end of FY 18.
▫ Improvement in domestic coal supply
 Savings due to reduction in dependence on costlier source of imported coal by the affected
IPPs ~ Rs. 160 billion by FY 19
 Further savings on account of rationalization of coal linkages and swapping.
▫ For every 1% reduction in AT&C loss level from 23% to 19%, decrease in cost of
supply ~ Rs. 65 billion at all India level
 Aggregate relief ~ Rs. 0.32/unit (or Rs. 260 billion) by FY 2019
UDAY – Impact – Banking Sector – ICRA Study
• Reduction in vulnerability of bank’s exposure to state Discoms
▫ Exposure will come down following the conversion of 75% of their exposure to
state government bonds in staggered manner
▫ PSBs’ reported restructured advances could come down by 0.8-1.0% from the
levels of ~7.5% as of June 2015.
▫ Reduction in vulnerability of banks’ exposure to IPPs, as counter party risk related
to Discoms will reduce.
▫ Signing of PPAs by Discoms could happen thereby lowering the off-take risk for
some of IPPs funded by banks.
• Impact on profitability
▫ Negative impact on banks’ operating profitability as an industry
 Net Interest Margins could decline as yields on the banks’ exposure will come down to 8-
9% from original contracted rate of as high as 14-15%.
UDAY – Impact – State Gov – ICRA Study
• Fiscal Indicators
▫ No impact on fiscal space for funding other programs
 GoI will exclude principal debt taken over by the States in calculation of fiscal deficit in
FY16 and FY17.
▫ Servicing of interest due on the debt taken over by the State Governments
 Would impact their revenue and fiscal balances and consequently add to their borrowings.
▫ From FY 18, a portion of the DISCOM losses, if any, would also be taken over by
the participating states
 Would have an impact on the fiscal deficit from that year onwards, unless the financial
performance of the underlying DISCOMs improves.
UDAY – Impact – State Gov – ICRA Study
• Borrowing Limit
▫ No impact on States’ existing borrowing plans as Discom debt will also be
excluded from the annual borrowing limit for FY16 and FY17
▫ Debt to be issued as non-SLR SDL could be ~ Rs. 2.15 trillion in FY16 and Rs. 1.08
trillion in FY17; Gross SDL raised by 29 State Gov in FY15 = Rs. 2.4 trillion
 Appetite for market participants to invest in non-SLR SDL is unclear, given the lack of a
track record for such instruments.
 Most likely States may end up issuing a substantial portion of the non-SLR SDL directly to
the existing lenders.
▫ Interest rates on non-SLR SDL likely to exceed those on the regular SDL due to
higher risk premium. However, the interest rates on non-SLR SDL are likely to be
lower than existing interest rates on DISCOMs’ debt, resulting in net interest
saving on a consolidated basis.
UDAY – Impact – State Gov – ICRA Study
• Leverage Levels
▫ DISCOM debt not taken over by the State (~ Rs. 1.08 trillion) shall be converted by
Banks/FIs into loans or bonds (Interest rate < Bank’s base rate plus 0.1%).
 Or remaining debt may be fully / partly issued by Discom as State guaranteed bonds.
 This might become a direct liability or guaranteed liability of the State Gov.
▫ Taking part in the UDAY scheme would not lead to an alarming rise in the leverage
levels of the States; Increase in leverage ~~1-4% of GSDP expected.
 Shift of the interest servicing from the Discoms to the States would have a substantial
impact on the fiscal balances of the States.
• Incentive for performing as per operational milestones
▫ Additional / priority funding through Deendayal Upadhyaya Gram Jyoti Yojana,
Integrated Power Development Scheme, Power Sector Development Fund or other
such schemes of MoP and MNRE
▫ States not meeting operational milestones may have to forfeit their claims on the
IPDS and DDUGJY grants.
Thank You