The Union government will have to do a tightrope walk as it pursues a target of 24x7 electricity for all, and also attract investors in a sector where distributors continue to be in the intensive care unit amid slipping demand.

The agenda for 2020 is well laid out - launch of UDAY 2.0, installation of smart prepaid meters, prompt payment by discoms, coal availability and reviving gas-based plants.

So far, the government has been on the mark as it has taken a slew of measures to bring the sector out of the woods. But, it has to ensure effective implementation of various policy tweaks done so far and focus on stalled gas-based power projects in the country.

“We have taken a series of steps to make the power sector sustainable. We made India a power-surplus nation and unified the country in one grid,” said Power Minister R.K. Singh.

“We connected every village and every house with electricity. We have implemented IPDS (integrated power development scheme) and Deen Dayal Gram Jyoti Yojna to make sure that the distribution faults are solved. We have put in place regulatory mechanisms to ensure 24x7 supply for all. At the same time, we are sort of changing our generation mix and reducing our carbon footprint,” he said.

However, industry bodies are of the view that there is an urgent need to address the issues of burgeoning outstanding dues of discoms towards generators and stressed projects are being dragged under insolvency proceedings.

“Stressed power projects are facing insolvency proceedings. But the stress is also caused by non-payment by discoms. All those projects which have sizeable outstanding of discoms towards them should not go for distress sale under the National Company Law Tribunal,” said Independent Power Producers Association of India director general Harry Dhaul.

According to PRAAPTI (Payment Ratification And Analysis in Power procurement for bringing Transparency in Invoicing of generators) portal, the discoms’ total outstanding dues to power gencos rose 48 per cent to Rs 81,010 crore in October.

In October, the total overdue amount, which was not cleared even after 60 days of grace period offered by generators, stood at Rs 67,143 crore as against Rs 39,338 crore in the same month last year.

Power producers give 60 days to discoms for paying bills for the supply of electricity. After that, outstanding dues become overdue and generators charge penal interest on that in most cases.

“The main issue is that discoms don’t pay promptly. If a power generator has sold power, then their dues should be paid,” said Association of Power Producers director general Ashok Khurana.

In order to give relief to power generation companies (gencos), the Centre enforced a payment security mechanism from August 1. Under this mechanism, discoms require open letters of credit for getting power supply.

Besides there is a provision for single-day purchase on advance payment.

Now, UDAY 2.0 is expected to bring a ray of hope to the stressed power sector.

The government had launched Ujwal Discom Assurance Yojana (UDAY) in November 2015, which was aimed at the financial and operational turnaround of discoms.

According to the UDAY portal, 16 states issued bonds worth Rs 2.32 lakh crore to reduce the financial burden of discoms against the targeted Rs 2.69 lakh crore.

It also showed that as many as 25 states’ aggregate technical and commercial losses are 21.09 per cent. The government intended to bring these losses to below 15 per cent.

Tariff revision was done by 25 out of 27 states that opted for the scheme. Data show that there is a gap of Rs 0.34 between the average cost of supply and average rate of realisation.

The indicators clearly show that there has been improvement on discoms’ performance, but a lot of ground still needs to be covered.

“We are changing the way the power sector works,” said Singh. “There will be no late payments or load shedding in the coming days. Earlier, there used to be fault metering, announcement of free electricity. But now, we are closing all the ends. We have asked states to use direct benefit transfer system if anyone wants to provide free electricity, the benefit will be directly transferred to the consumer.”

“We have taken another step to improve the system by asking for pre-payments; now that will lead to lesser costs and lesser tariff because carried costs have been done away with. We have also brought down a pre-payment system for discoms,” he said.

On using technology to deal with the issue of delayed payments by discoms, he said, “Soon, we will replace every meter with smart meters. After three years, the power sector will be completely sustainable and demand will spike. Also, the investment will come as they will have confidence that the payment will come.”

The next challenge for the government will be the revival of gas-based power plants - 14,305 MW of generation capacity remains stalled for want of fuel. The challenge is inadequate domestic gas production and costlier imports.

What is UDAY?

* The government launched UDAY on November 11, 2015, for the operational and financial turnaround of state-owned power distribution companies (discoms). The scheme is seen as a pathbreaking reform for realising the prime minister’s vision of providing affordable and accessible 24x7 power for all.

* UDAY is a comprehensive scheme providing measures for both revenue-side and cost-side efficiency. On the revenue side, it proposes annual tariff increase, a strict discipline of quarterly fuel cost adjustment, etc. For cost-side efficiency, it focuses on reduction of interest burden, reduction in fuel cost through coal swapping, coal price rationalisation, time-bound loss reduction, etc.

* The scheme’s target is also to reduce the average aggregate technical and commercial (AT&C) loss from around 22 per cent to 15 per cent and eliminate the gap between average revenue realised (ARR) and average cost of supply (ACS).

* The targets will be achieved by improving operational efficiency through compulsory smart metering, upgradation of transformers, meters, etc. Energy efficiency measures would be adopted like promotion of efficient LED bulbs, agricultural pumps, etc.

* The scheme aims to reduce power losses in the distribution sector, reduce the cost of power, reduce the interest burden and improve the operational efficiency of discoms so that adequate power can be supplied at affordable rates. This objective is to be achieved via a phased takeover of the debts of discoms by states. UDAY is basically a debt restructuring plan for discoms.

* The scheme is optional. But states are encouraged to come on board with incentives for good performances. The states joining the scheme will sign an MoU to take over 75 per cent of the debts of their respective discoms in a phased manner by issuing bonds.

* The other 25 per cent of the debt will be issued by discoms in the form of bonds.

How has the scheme fared?

* Discom losses, which had progressively reduced in the first couple of years since the rollout of UDAY in November 2015, have rebounded in FY2019 to nearly double the losses recorded in the previous year.

* The book losses of discoms, which had reduced from Rs 51,562 crore in FY2016 to Rs 15,132 crore in FY2018, have nearly doubled this financial year to Rs 28,036 crore.

* The data also points to discoms lagging behind in eliminating the gap between the average cost of supply and realisable revenue. Discoms have also missed the FY2019 target of bringing down their aggregate technical and commercial losses to 15 per cent.

* The primary reason for failure, as is being recognised in policy circles, is the failure of discoms to collect the full cost that they pay for power - the same issue that had led to the floundering of the previous two schemes.

* The scheme had some positives, though. Of the 28 states that implemented it, 10 have shown either reduced losses or profits in FY2019. Also, even as most states registered an improvement in reducing the ACS-ARR gap and in bringing down AT&C losses, they are way behind in achieving the targets - a trajectory that bears similarity to how the two previous attempts had run aground.

* As on December 17, only four states - Himachal Pradesh, Gujarat, Maharashtra and Karnataka - had recorded an ACS-ARR below 0, while the rest recorded gaps ranging from Rs 0.01 / unit to Rs 2.13 / unit. A major reason for discoms being unable to bridge this gap is the delayed tariff hikes by states.

Manorama Yearbook app is now available on Google Play Store and iOS App Store