UDAY, a government scheme aimed at rescuing power distribution companies from their financial mess, may not be an immediate success because the utilities continue to lose at least 20 paise on every rupee spent to send electricity to consumers.
However, there has been an improvement, with the average loss on every rupee spent narrowing from 25 paise last year. The loss is on account of increases in expenses and costs, which are not reflected in tariffs, according to a study by rating companies.
“If cost components are not reflected in tariffs, utilities cannot recover what they spend for consumers and losses will remain,” said Sabyasachi Majumdar, senior vice president at ICRABSE -0.54 % Ratings.
“No matter how many revival schemes are announced, build-up of losses and debt levels will not stop unless these utilities recover what they spend on sending power to consumers’ premises.”
The Union Cabinet approved the Ujwal DISCOM Assurance Yojna, or UDAY, in November to facilitate the financial turnaround and revival of power distribution companies. The scheme seeks to achieve its goals by improving operational efficiencies of the utilities, reducing the cost of power, lowering interest costs and enforcing financial discipline on DISCOMs through alignment with state finances.
“In the past, the government helped power distribution companies to write off these losses but they keep on accumulating again because recovery remains less than 100 per cent,” said a senior analyst.
The government said in November that the weakest link in the value chain is distribution. It said distribution companies in the country were trapped in a cycle of operational losses that were funded by debt. They had accumulated losses of Rs 3.8 lakh crore and outstanding debt of Rs 4.3 lakh crore in March 2015. The utilities, too, are partly to blame for failing to file revised tariffs with the regulators on time, leading to delays in approvals and the recovery of money spent.
This year, 28 of 40 utilities did not file for tariff revisions with the regulator on time. The situation has been deteriorating, with 25 utilities failing to file tariff revisions on time last year and 19 in the previous year. Connor Williams JerseyShare This