Union Cabinet approves discoms debt restructuring plan

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The union cabinet  has approved a financial restructuring package for state-run power distribution companies burdened by accumulated debt. The scheme has been named as Ujwal DISCOM Assurance Yojna (UDAY). Under UDAY scheme power distribution companies (discoms) will convert their debt into state bonds, and ensure struggling discoms to shake off years of losses and start on a path to profitability.

Accumulated discoms debt upto this period was as much as Rs.500,000 crore, while the four most severely stressed states are Tamil Nadu, Rajasthan, Uttar Pradesh and Haryana. The aim of the restructuring package would be to ease financial burdens of state discoms, bring down their costs as well as ensure timely tariff revision for them. The government has outlined a target of bringing down losses at discoms to zero by 2019. Providing 24/7 power to every home by 2019 which was one of its key electoral promise.

Power companies are under heavy debt 

  • The package is a follow-up to a a high-powered meeting chaired by Prime Minister which was held during mid-September on resolving the issue of distress among the state-run power companies because they have accumulated losses worth a staggering Rs.500,000 crore. Banks alone have financed Rs.430,000 crore to the power sector.
  • Eight states have the maximum debts Rajasthan, Tamil Nadu, Haryana, Uttar Pradesh, Andhra Pradesh, Telangana, Bihar and Jharkhand among them  the first four have accumulated the maximum debt.

UDAY scheme  will revive power DISCOM by :-

  1. Swapping of coal linkages 
  2. Monitoring aggregate technical and commercial (AT&C) losses 
  3. Focus on smart metering and feeder separation in states

Big relief for power companies :-

Ujwal Discom Assurance Yojna (UDAY), will shift 75 percent of discoms debt burden from their to states' balance sheets and this will be result in interest cost savings by 3-5 percent. States can sell the balance 25 percent as state-backed bonds. State government's power bonds will carry interest rates of g-sec plus 50 basis points.The government will sign individual memorandum of understanding (MoU) with each state.

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