PressInformationBureau

GovernmentofIndia
Cabinet
05November201519:59IST

UDAY(UjwalDISCOMAssuranceYojana)forfinancialturnaroundofPowerDistributionCompanies

The Union Cabinet chaired by the Honble Prime Minister Shri Narendra Modi, has today given its approval to a
new scheme moved by the Ministry of Power Ujwal DISCOM Assurance Yojna or UDAY. UDAY provides for the
financialturnaroundandrevivalofPowerDistributioncompanies(DISCOMs),andimportantlyalsoensuresasustainable
permanentsolutiontotheproblem.
UDAYisapathbreakingreformforrealizingtheHonblePrimeMinistersvisionofaffordableandaccessible24x7
PowerforAll.ItisanotherdecisivestepfurtheringthelandmarkstridesmadeinthePowersectoroverthepastoneanda
half years, with the sector witnessing a series of historic improvements across the entire value chain, from fuel supply
(highestcoalproductiongrowthinover2decades),togeneration(highestevercapacityaddition),transmission(highestever
increaseintransmissionlines)andconsumption(over2.3croreLEDbulbsdistributed).
The weakest link in the value chain is distribution, wherein DISCOMs in the country have accumulated losses of
approximatelyRs.3.8lakhcroreandoutstandingdebtofapproximatelyRs.4.3lakhcrore(asonMarch,2015).Financially
stressed DISCOMs are not able to supply adequate power at affordable rates, which hampers quality of life and overall
economic growth and development. Efforts towards 100% village electrification, 24X7 power supply and clean energy
cannot be achieved without performing DISCOMs. Power outages also adversely affect national priorities like Make in
IndiaandDigitalIndia.Inaddition,defaultonbankloansbyfinanciallystressedDISCOMshasthepotentialtoseriously
impactthebankingsectorandtheeconomyatlarge.
Due to legacy issues, DISCOMs are trapped in a vicious cycle with operational losses being funded by debt.
OutstandingdebtofDISCOMshasincreasedfromaboutRs.2.4lakhcrorein201112toaboutRs.4.3lakhcrorein2014
15,withinterestratesupto1415%.
UDAYassurestheriseofvibrantandefficientDISCOMsthroughapermanentresolutionofpastaswellaspotential
futureissuesofthesector.ItempowersDISCOMswiththeopportunitytobreakeveninthenext23years.Thisisthrough
four initiatives (i) Improving operational efficiencies of DISCOMs (ii) Reduction of cost of power (iii) Reduction in
interestcostofDISCOMs(iv)EnforcingfinancialdisciplineonDISCOMsthroughalignmentwithStatefinances.
Operational efficiency improvements like compulsory smart metering, upgradation of transformers, meters etc.,
energyefficiencymeasureslikeefficientLEDbulbs,agriculturalpumps,fans&airconditionersetc.willreducetheaverage
AT&Clossfromaround22%to15%andeliminatethegapbetweenAverageRevenueRealized(ARR)&AverageCostof
Supply(ACS)by201819.
Reductionincostofpowerwouldbeachievedthroughmeasuressuchasincreasedsupplyofcheaperdomestic
coal,coallinkagerationalization,liberalcoalswapsfrominefficienttoefficientplants,coalpricerationalizationbasedon
GCV (Gross Calorific Value), supply of washed and crushed coal, and faster completion of transmission lines. NTPC
aloneisexpectedtosaveRs.0.35/unitthroughhighersupplyofdomesticcoalandrationalization/swappingofcoal
whichwillbepassedontoDISCOMs/consumers.
FinancialliabilitiesofDISCOMsarethecontingentliabilitiesoftherespectiveStatesandneedtoberecognizedas
such.DebtofDISCOMsisdefactoborrowingofStateswhichisnotcountedindejureborrowing.However,creditrating
agenciesandmultilateralagenciesareconsciousofthisdefactodebtintheirappraisals.Inlinewiththeaboveandsimilar
observations of Fourteenth Finance Commission, States shall take over 75% of DISCOM debt as on 30 September 2015
overtwoyears50%ofDISCOMdebtshallbetakenoverin201516and25%in201617.Thiswillreducetheinterest
costonthedebttakenoverbytheStatestoaround89%,fromashighas1415%thusimprovingoverallefficiency.Further
provisionsforspreadingthefinancialburdenonStatesoverthreeyears,willgiveStatesflexibilityinmanagingtheinterest
paymentonthedebttakenover,withintheiravailablefiscalspaceintheinitialfewyears.Apermanentresolutiontothe
problem of DISCOM losses is achieved by States taking over and funding at least 50% of the future losses (if any) of
DISCOMsinagradedmanner.
UDAYisashiningexampleoftheutilizationofthebestprinciplesofcooperativeandcompetitivefederalismand
hasbeenevolvedthroughdiscussionsatthehighestlevelswithmultipleStates.AdoptingUDAYisoptionalforStates,but
provides the fastest, most efficient and financially most feasible way for providing 24X7 Power for All. It will be
operationalizedthroughatripartiteagreementamongsttheMinistryofPower,StateGovernmentandtheDISCOM.
UDAY accelerates the process of reform across the entire power sector and will ensure that power is accessible,
affordableandavailableforall.UDAYtrulyheraldstheuday(rise),ofaPowerfulIndia.
SalientFeaturesofUDAY

Statesshalltakeover75%ofDISCOMdebtason30September2015overtwoyears50%ofDISCOMdebtshall

Statesshalltakeover75%ofDISCOMdebtason30September2015overtwoyears50%ofDISCOMdebtshall
betakenoverin201516and25%in201617.
GovernmentofIndiawillnotincludethedebttakenoverbytheStatesaspertheaboveschemeinthecalculationof
fiscaldeficitofrespectiveStatesinthefinancialyears201516and201617.
States will issue nonSLR including SDL bonds in the market or directly to the respective banks / Financial
Institutions(FIs)holdingtheDISCOMdebttotheappropriateextent.
DISCOMdebtnottakenoverbytheStateshallbeconvertedbytheBanks/FIsintoloansorbondswithinterestrate
notmorethanthebanksbaserateplus0.1%.Alternately,thisdebtmaybefullyorpartlyissuedbytheDISCOMas
StateguaranteedDISCOMbondsattheprevailingmarketrateswhichshallbeequaltoorlessthanbankbaserate
plus0.1%.
StatesshalltakeoverthefuturelossesofDISCOMsinagradedmannerandshallfundthemasfollows:

Year
Previous
Years
DISCOM
loss to be
taken over
byState

201516
0% of the
loss
of
201415

201617
0% of the
loss
of
201516

201718
5% of the
loss
of
201617

201819
10% of
thelossof
201718

201920
25% of
thelossof
201819

202021
50% of the
previous
yearloss

State DISCOMs will comply with the Renewable Purchase Obligation (RPO) outstanding since 1st April, 2012,
withinaperiodtobedecidedinconsultationwithMinistryofPower.
StatesacceptingUDAY and performing as per operational milestoneswill begivenadditional/priorityfunding
through Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY),Integrated Power Development Scheme (IPDS),
Power Sector Development Fund (PSDF) or other such schemes of Ministry of Power and Ministry of New and
RenewableEnergy.
SuchStatesshallalsobesupportedwithadditionalcoalatnotifiedpricesand,incaseofavailabilitythroughhigher
capacityutilization,lowcostpowerfromNTPCandotherCentralPublicSectorUndertakings(CPSUs).
StatesnotmeetingoperationalmilestoneswillbeliabletoforfeittheirclaimonIPDSandDDUGJYgrants.
UDAYisoptionalforallStates.However,Statesareencouragedtotakethebenefitattheearliestasbenefitsare
dependentontheperformance.

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NW/AKT/SH