Uday – How does it affect the people?

Why was UDAY created?

UDAY, Ujwal DISCOM Assurance Yojana, was created with the sole aim of setting right the loss making power Distribution Companies.

Every one of the distribution companies owned by the State Governments were making losses. Some of them, particularly, TANGEDCO, the Tamil Nadu DisCom has an accumulated loss of about Rs.5,786 Crores.

Now, how to make these DisComs profitable? In simple terms, this is what UDAY does.

Step 1: Write off all of their debts and pass it to the tax payer.
Step 2: Improvements in performance shall be written down. But no penalty for not doing it.
Step 3: Everything for the DisCom. Nothing or very little for the Consumer / Citizen.

Naturally, this applies only to government owned power companies and not to privately held. Simple reason being, under the same conditions, they are not making losses!

Tamil Nadu has signed it

Why wouldn’t they? Given the fact that they have a huge debt to be written off, they should be more than willing to sign it off. This will now be legally transferred to the tax payer account in the form of Government write off. It says, state government will write off the debt in a phased manner. By 2021, the entire loss should have been written off by the state government.

So who is paying for all the errors of TANGEDCO administration?

You and me. They pilfer the materials and plunder the company. We pay for it!

What should TANGEDCO do for this in return?

They are not asked to usher in any systems. They will not have a customer support system in place. No ISO certification. No third party audits! Nothing is mandatory for them.

All that they will have to do is: 1. Minimize losses 2. Minimize losses 3. Minimize losses. That was not a typo.

Currently, TANGEDCO makes about 26% T&D loss. If you include the commercial loss, it could go up to about 30%. But this many say, is not the real loss. However, assuming that this 26% is real, it is more than the national average of about 18% and substantially more than the world average of 8%! World best is somewhere close to 4%. In other words, for every three units generated we are losing one unit.

Now, does UDAY set any loss minimization target. There are target dates and planned replacement of transformers and meters and other equipment. But then, where does it ensure that the new set of equipment will work to the required efficiency? Who would ensure this? Is there a process set in place?

We have fought in the courts for ISO implementation in the DisComs so that a semblance of system could come in place. But UDAY does not advocate any such thing.

Target for AT&C losses has been set at 15% when many of the DisComs are at a remarkably high levels and achieving such a target is no mean task. Plus, operational changes suggested by UDAY must be done in order to achieve and monitor such losses.

Now, out of the 17 states that has already signed UDAY, five of them have announced their data on this by end of 2016. Please see the graph below:

It is not some states that have missed the target. It is BJP ruled states who have missed the targets set for UDAY. It is certainly not going to be easy for the DisComs to achieve.

If it is not realizable, even after revisiting the targets set, then it is going to be really difficult to implement it. And every one of them will sooner than later, miss the target.

Only penalty for not meeting the target set will be that they will not get further funding for their projects. And to top it, banks are forbidden from funding again beyond 25% the DisComs under this scheme.

Two years from now if not earlier, GoI will have to revisit these clauses and allow these companies to start borrowing again.

Tariff revisions

DisComs have the liberty to revise the tariff every three months. But then, that is going to be discretionary. Powered by Politics, most of these DisComs might not do it and would again roll back to annual or biennial power tariff revisions.

No change is foreseen. However, there could be immediate price rise. But efficiency in operation should reduce the prices over a period of time, says UDAY. If it is achieved, is the answer. When achievement is not mandatory, where is the motivation to achieve?

So price revision could be on the higher side initially. The movement of the prices downwards could still be farther away.

Service benefits to Consumers

No Power Cuts: Power purchase could be much more easier to the DisComs at least till 2021 when the entire debt is written off and DisComs position themselves for more debt. This could ensure that the overall power availability will be more and then power cuts could become a thing of the past. But then, UDAY or no UDAY, I think, this would have happened what with the surplus power across the country, where will the generators go but to the consumers?

Consumer Response Time: DisComs will continue to play their monopoly card with no change happening in the Act or the Rules. This would mean that the status quo will continue with reference to the service delivery by the DisCom. We are not going to be in any better form.

Ease of Operation: Meters will be changed and tamper proof meters are expected to be in place of the existing ones. This would mean that there will be less of power theft, more of monitoring and better load side management. The real culprits will be caught, we hope so, and the common people who are currently paying for it, will save themselves.

Loss to the Consumers / Citizens

Who takes the bill? As usual, it is the tax payer / citizen who will pay for the government lapses. Inefficient operation of the DisCom resulting in large scale loss has to be made up by the State Governments. This will mean they will run under a cut in their budget and to make up they need to tax the poor people of the state more. So be prepared to pay off the 5,786 crores in the next five years. Not a mean task, man!

Tariff increase: Initial increase in tariff has to be put up with. Long term gain because of reduction in losses is the carrot suspended in front of us. But will it happen, is still a dream. We hope it does.

Transparency: No improvement can be expected to this end. UDAY does not even consider the existence of the Citizens. All that it talks of is, will the people of this country buy some of the bonds floated by the State Governments. To what extent, these bonds will be floated is still a question to be answered? However, some of the states are already on the way to issue bonds.

What should have been done and what was done?

Once again, UDAY looks like a scheme put together hurriedly and it is pretty similar to what was introduced by the previous government in 2012. Every body knows the fate of the 2012 scheme and how it failed. That should have given them adequate lessons in restructuring the scheme. However, it does not seem to have been done.

Here is a wish list of how it could have been done:

1.     Process control to be introduced in all DisComs prior to getting into the scheme.
2.     Passing of the Amendment to Electricity Act 2003 enabling these companies to go private. They can sell shares in their company to private citizens and financial institutions enabling them to collect the debt amount and write it off in one go.
3.     Passing it off to the state governments and continuing the status quo on the constitution of the companies will only render them ineffective for further period.
4.     Ushering in private competition in all states and ensuring that people have choice of power source instead of advocating and supporting a monopoly that does not perform.
5.     Sale of assets of the DisCom in public sphere and to private parties to bring about the required cash for debt clearance instead of depending on the State Governments. Independence of the companies should have been stressed, instead of increasing the dependency on the State.

Once more the GoI has done what they are good at doing, jumping the gun. UDAY should have followed the introduction of all the above listed jobs or at least a few of them.

Now, UDAY is going to be one more scheme in the back burners that would never be talked about after the next five years, once the debt is wiped out and DisComs will be fresh and ready for more.


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