Context: Recently, a report suggesting that in almost five years after the launch of Ujwal DISCOM Assurance Yojana (UDAY), it has failed to engineer a turnaround in discom finances.

• As of November 2019, the dues owed by discoms to power producers, both independent and state-run entities, stood at Rs 80,930 crore.
• Out of Rs. 80,930 crore, Rs 71,673 crore extends beyond the allowed grace period of 60 days.
• Rajasthan leads the states with the most dues, followed by Tamil Nadu and Uttar Pradesh.

Background

• The Ministry of Power launched Ujwal DISCOM Assurance Yojana (UDAY) which was approved by Union Cabinet in 2015.
• It was launched as a path breaking reform for realizing the Prime Minister’s vision of affordable and accessible 24x7 Power for All.
• It is another decisive step furthering the landmark strides made in the Power sector over the past one and a half years, with the sector witnessing a series of historic improvements across the entire value chain.

Features of UDAY
The UDAY scheme, which involved state governments taking over the debt of discoms, had three critical components:

• Reduction in the aggregate technical and commercial (AT&C) losses,
• Timely revision of tariffs, and 
• Elimination of the gap between average per unit of cost and revenue realized.

The scheme provides: (a) Financial Turnaround, (b) Operational improvement, (c) Reduction of cost of generation of power and (d) Development of Renewable Energy and Energy efficiency & conservation.
It has the provision of ensuring the rise of vibrant and efficient DISCOMs through a permanent resolution of past as well as potential future issues of the sector.
It seeks to empower DISCOMs through four initiatives:

• Improving operational efficiencies of DISCOMs
• Reduction of cost of power
• Reduction in interest cost of DISCOMs
• Enforcing financial discipline on DISCOMs through alignment with State finances.

It increases the speed of the process of reform across the entire power sector
It also aims to ensure that power is accessible, affordable and available for all.
Limitations/Challenges of UDAY

• Over the five years, it has failed to augment a sustainable turnaround in the fortunes of the beleaguered distribution segment.
• The target to reduce AT&C losses has not been achieved and has declined in some states.
• Due to over-emphasis on political consideration as compared to commercial decisions, there has been insufficient raise in power tariffs of some states.
• Inconsistent tariff hike - Few states like Andhra Pradesh, Assam, Chhattisgarh, Maharashtra, Telangana and Uttar Pradesh have not increased tariff as per the hikes envisaged in the MoUs signed under UDAY.
• Rise in sales via open access - The number of open access consumers have increased by 4.3%, thus the sales migration has significantly impacted DISCOM’s revenue as well as operations and power procurement planning, because it adds to demand uncertainty and makes the management of the DISCOM’s thermal fleet a challenging task.
• According to a report of the RBI which states that the outstanding debt of states has increased to 25% of their combined GDP over the last five years.

Measures to be adopted for UDAY

• A new plan should be formulated which aims to address these issues by reducing electricity losses, eliminating the tariff gap, smart metering, privatizing discoms, and having distribution franchisees.
• The state governments need to eliminate revenue gaps in a time-bound manner in order to turn around loss-making discoms.
• The UDAY scheme needs to be integrated with other schemes such as KUSUM to increase amount of electricity to DISCOMS as well as Make in India and Start-up India to ensure overall development.