Why in the News?

The Comptroller and Auditor General of India (CAG) in its report on Compliance Audit for the year ended March 2021 said that the main objective of the financial and operational turnaround of the Maharashtra State Electricity Distribution Company (MSEDCL) was not achieved in spite of implementing Ujwal DISCOM Assurance Yojana (UDAY) scheme.

What was the News Regarding CAG's Report for Ujwal DISCOM Assurance Yojana (UDAY) scheme?

• MSEDCL failed to reach its targets of reducing AT&C (Aggregate Technical and Commercial) losses to the desired level.
• On the contrary, AT&C losses for MSEDCL increased from 16.94% in 2018-19 to 20.73% in 2020-21.
• The primary reasons for this increase were poor collection, especially from agricultural consumers and various State Government departments.
• Despite implementing the UDAY scheme, the main objectives of achieving financial and operational turnaround for MahaVitaran were not accomplished.
• The Government of Maharashtra should prioritize clearing all electricity dues owed by departments and local bodies to MahaVitaran within a specified timeframe.
• To improve the situation, MahaVitaran should swiftly complete DT (Direct Connected) metering and feeder segregation, aiming to reduce AT&C losses to 15% by enhancing billing and collection efficiency.

About UDAY Scheme:

• The UDAY Scheme, introduced by the Government of India's Ministry of Power in 2015, aims to assist financially struggling Power Distribution Companies (DISCOMs) owned by state governments.
• It serves as a debt restructuring plan, enhancing the operational efficiency of DISCOMs.
• State participation in UDAY is optional.
• States joining the scheme agree to take on 75% of their respective DISCOMs' debts, while the remaining 25% is converted into bonds issued to the DISCOMs.
• As an incentive, participating states receive additional priority funding for various schemes, such as Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Integrated Power Development Scheme (IPDS).
• The primary goal of UDAY is to provide accessible and affordable 24x7 electricity to all citizens.
• It targets revenue-side and cost-side efficiency, initiating reforms in power generation, transmission, distribution, coal, and energy efficiency.
• Initially planned for four years until 2019, the scheme offered a revival package for electricity distribution companies.
• Its success led to the introduction of 'UDAY 2.0' under the Union Budget 2020-21 to further build upon its achievements.

The Primary Objectives of the UDAY Scheme are as follows:

• AT&C Loss Reduction: Target to decrease the aggregate technical & commercial (AT&C) losses from approximately 22% to 15% by the year 2018-19.
• Enhanced Operational Efficiency: Achieve improved operational efficiency through mandatory smart metering, transformer upgrades, and meter enhancements.
• Energy Efficiency Measures: Implement energy efficiency measures, including the promotion of energy-efficient LED bulbs and other energy-saving initiatives.
• Power Sector Cost Reduction: Reduce power costs, interest burden, and power losses in the distribution sector.
• State Participation Encouragement: Encourage active participation of states in the scheme by offering incentives to performing states.

Additionally, the UDAY Scheme offers the following advantages:

• Increased Domestic Coal Supply: Ensure increased supply of domestic coal to power generation companies.
• Rationalized Coal Prices: Implement measures to rationalize coal prices for improved affordability.
• Faster Interstate Transmission Lines: Expedite the completion of interstate transmission lines for enhanced power distribution.
• Transparent Competitive Bidding: Facilitate power purchase through transparent competitive bidding processes.
• Overall, the UDAY Scheme seeks to address various aspects of the power sector to enhance efficiency, reduce losses, and promote sustainable growth in the energy distribution and consumption landscape.

What is the Need for UDAY Scheme?

• Financial Strain: DISCOMs in India are burdened with losses and substantial outstanding debt due to supplying electricity at tariffs below the cost of production.
• Affordability and Quality of Life: The financial distress of DISCOMs hampers their ability to provide adequate power at affordable rates, impacting the quality of life for citizens and hindering overall economic growth and development.
• Distribution Inefficiencies: Inefficient power distribution, including significant transmission and distribution losses, further exacerbates the financial challenges faced by DISCOMs, leading to heavy borrowing from banks to sustain their operations.
• Mounting Debts and Losses: Accumulated losses and a massive debt burden of approximately Rs. 2.75 lakh crore from 2011-12 to 2014-15 necessitated a government intervention to develop a financial scheme that would assist DISCOMs and address their transmission losses.

The Challenges Confronting the UDAY Scheme are as follows:

• Persistently High AT&C Losses: Some states continue to grapple with high AT&C losses, with certain regions reporting losses exceeding 40%. Only a limited number of states, such as TN, Kerala, Gujarat, etc., have managed to reduce losses to less than 15%.
• Impact of Rising Renewable Energy (RE) Share: The increasing penetration of renewable energy in the distribution system is displacing low-cost coal, leading to a rise in the average cost of supply for DISCOMs.
• Unprofitable Bonds: UDAY bonds issued have not yielded substantial profits, resulting in considerable losses of up to 6,000 crores for banks and financial institutions that provided the funds.
• Strained State Finances: Placing the responsibility on states to handle the situation has added pressure to their finances, further straining their financial stability.

The Accomplishments of the UDAY Scheme are as follows:

• Extensive State Participation: The UDAY Scheme witnessed significant participation from numerous states, resulting in improved liquidity conditions for DISCOMs and enhanced power supply.
• Reduction in AT&C Losses: Participating states successfully achieved a reduction in aggregate technical & commercial (AT&C) losses or distribution losses, contributing to the overall efficiency improvement in the power sector.

Mains Question:

• Assess the UDAY Scheme's impact on India's power sector reforms, considering challenges like high AT&C losses and increasing renewable energy share. Recommend strategies to address these issues. (15M)