Power shock: UDAY didn't check discom losses, RBI says another bailout needed
Power shock: UDAY didn't check discom losses, RBI says another bailout needed
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One of the biggest reforms in the power sector, the Uday or the Ujjwal Discom Assurance Yojana, has failed to nursing the stressed electricity discoms back to health.

Rather than easing financial stress of state-run discoms, the utilities currently are back in a crisis situation with rising levels of losses and an ever-increasing debt burden.

The situation has reached such alarming levels that a recent report by Reserve Bank of India (RBI) on state finances has indicated that another round of bailout may be required to bring some degree of balance to the sector.

Besides, the apex said that the financial position of discoms is expected to weaken further in 2020-21 as the Covid-19 related lockdown has severely impacted power demand.

"Even post-UDAY, state owned enterprises in power distribution (Discoms) continue to impart significant downside risk (leading to higher states' liabilities) with no visible signs of turnaround. States' outstanding liabilities increased by 1.5 per cent of GDP due to UDAY in 2015-16 and 2016-17; however, despite this steep fiscal cost, discom losses since then have reached pre-UDAY level of 0.3 per cent of GDP in 2018-19," RBI said in its report on state finances.

In fact, adjusted for revenue grants made under UDAY - which are transitory and in the nature of accounting transfers, discom losses are significantly higher in 2018- 19 vis-a-vis 2015-16.

Estimates of the revenue gap per unit of power sold - average cost of supply minus average realisable revenues (ACS-ARR gap) for 2019-20 reveal that most states have seen a further worsening in their financial performance. Only five states - Assam, Goa, Gujarat, Haryana and Maharashtra - have eliminated revenue gaps in 2019-20, thus meeting the UDAY target.

Jammu and Kashmir, Rajasthan, Andhra Pradesh and Telangana have the highest revenue gaps, which have which have widened further in 2019-20.

A look at the data shows that revenue gap for states such as Bihar, Andhra Pradesh, Rajasthan, Tamil Nadu has increased between 60 paisa to Rs 1 per unit in FY20. This means that discoms are losing this amount on selling electricity to consumers. The gap is highest in Jammu and Kashmir at over Rs 2 per unit.

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Free Press Journal