Discom and UDAY Scheme

Q) What are the challenges faced by power distribution companies ?

Ans) The challenges faced by the power distribution companies or DISCOMs are as follow: -

1. High Aggregate Technical and Commercial (AT&C) losses (which is about 28 per cent)
2. Improper consumer database is one of the biggest challenges before DISCOMs for proper billing and collection of revenues. 
3. Recent studies estimate that accumulated loss of state owned discoms are as huge as 4 trillion rupees.
4. Lack of proper information hinders decision in estimating losses, arresting thefts or making investments.
5. Infrequent tariff fixation and Inadequate coverage of increasing cost.
6. Adoption of better and energy efficient technology and funds required to upgrade the existing technology.
7. Reforms and restructuring of loss making state owned discoms. 
8. India has over 250 gigawatt production of power but DISCOMs are unable to list it because of huge losses.

Q) What is UDAY scheme ? 

Ans) UDAY or Ujjawal Discom Assurance Yojana is a Government of India initiative to provide solution to the problems faced by the discoms through four initiatives. The initiatives are as follow: -

• Improving operational efficiencies of discoms(Operational efficiency improvements like compulsory smart metering, upgradation of transformers, meters etc., energy efficiency measures like efficient LED bulbs, agricultural pumps, fans & air-conditioners etc. will reduce the average AT&C loss )
• Reduction of cost of power (Reduction in cost of power would be achieved through measures such as increased supply of cheaper domestic coal, coal linkage rationalization, liberal coal swaps from inefficient to efficient plants, coal price rationalization based on GCV (Gross Calorific Value), supply of washed and crushed coal, and faster completion of transmission lines.)
• Reduction in the interest costs of discoms
• Enforcing financial discipline on discoms through alignment with state finances

Q) How the UDAY scheme would benefit the country ?

Ans) The UDAY scheme or Ujjawal Discom Assurnce Yojana is an GoI initiative to provide solution to problems faced by power distribution companies. The benefits of this scheme would be as follow:

• Achievement of 24*7 power supply across the country.
• Power to 5 crore households which are without electricity.
• Speedy electrification of remaining 18,500 villages.
• Energy security through coal and renewable sources.
• Revive investments in power sector to generate employment.
• Lower risk for existing investments and loans in power, coal and renewable energy sectors.
• Increase procurement of power by DISCOMs 
• Reduce investment uncertainty across the sector.

Q) Why have initiatives taken before by the government to reform DISCOMs failed ?

Ans) Government schemes taken earlier to reform DISCOMs have not yielded desired result because of various reasons. Some of them are as follow:

• Delays in the filling of the tariff petitions and issuance of tariff orders.
• Non implementation of periodic fuel cost pass through mechanism. 
• Inadequate measures towards efficiency improvements including reduction in AT&C loss.
• Inability to meet operating and financial parameters set down by regulators.
• Delays in takeovers of the debts by the state governments. 
• All this resulted into accumulated losses and debt levels for the affected utilities. 
• It resulted into tightening of lending from the banking sector.

Q) Critically analyse the UDAY scheme?

Ans) UDAY or Ujjawal Discom Assurance Scheme is an GoI initiative to provide solution to the problems faced by power distribution companies. DISCOMS are facing following challenges: 

1. High Aggregate Technical and Commercial (AT&C) losses (which is about 28 per cent)
2. Improper consumer database is one of the biggest challenges before DISCOMs for proper billing and collection of revenues. 
3. Recent studies estimate that accumulated loss of state owned discoms are as huge as 4 trillion rupees.
4. Lack of proper information hinders decision in estimating losses, arresting thefts or making investments.
5. Infrequent tariff fixation and Inadequate coverage of increasing cost.
6. Adoption of better and energy efficient technology and funds required to upgrade the existing technology.
7. Reforms and restructuring of loss making state owned discoms. 
8. India has over 250 gigawatt production of power but DISCOMs are unable to list it because of huge losses. 

                                                 To meet these challenges the GoI will take the four initiatives. The steps to be taken include improving operational efficiency, reducing the cost of power generation, reducing the interest cost of the DISCOMs and enforcing financial discipline on the DISCOMs through alignment with state finances.

                                                 However, there are challenges which can hinder the path of the scheme. They are:-

1. There have been previous attempts too for sequestering funds for central transfers that ended up unsuccessful. 
2. Unless DISCOMs are not allowed to charge prices that reflect cost of delivery , including a return on capital, they would always be on financial blink. 
3. As it is voluntary scheme so it is not sure whether how many states would participate in the implementing it. 
4. States do not have sufficient initiatives built in to implement this scheme on priority.

The government needs to accelerates the process of reform across the entire power sector to ensure that power is accessible, affordable and available for all.