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Ujwal DISCOM Assurance Yojana – UDAY SCHEME

Written by - Akshatha Sajumon

March 3, 2022 5 minutes

The Government of India wanted to deliver accessible power to all, which led to the launch of Ujwal DISCOM Assurance Yojana or the UDAY scheme. The scheme was initiated on 5 November 2015 through the Ministry of Power. It applies to DISCOMs, which means the power distribution companies in the state. Earlier, the scheme was planned for four years, but after observing the scheme’s scope, the government came up with Uday 2.0 under Union Budget 2020-21.

Why was Ujwal DISCOM Assurance Yojana needed?

It is seen that in India, the companies which are distributing power have to face loss. They provide electricity at low tariffs, which do not meet the cost. This led to the outstanding debt. This, in turn, affected the overall quality of life as companies could not provide electricity at an affordable price. The power companies also had to borrow from banks as there were distribution losses of around Rs 2.75 lakh crore. To overcome these transmission and operational losses government wanted to bring a practical scheme. 

Objectives of Ujwal DISCOM Assurance Yojana

Lower the power cost and other related costs 

There is an inadequate 

output with the high price due to outdated systems used for transmitting power. It also results in more maintenance. This led to the need for upgrading the infrastructure and also the technology. It could help bring down the cost of power and improve operational efficiency. Also, there will be low-interest costs which are paining the industry. 

Effective financial discipline for DISCOMs

The scheme emphasizes building a debt restructuring plan. It is for the benefit of DISCOMs as this will help them come out of the debt burden. UDAY scheme aims to increase the prices when required and rationalize tariffs. DISCOMs will follow disciple if there are proper mechanisms. Hence, the government is planning to introduce effective systems. 

Make the DISCOMs operationally efficient.

With the help of proper infrastructure and new technology, the scheme wants to enhance the operational efficiency of the power distribution companies. This includes installing advanced meters, agricultural pumps, upgraded transformers, proper feeder separators, energy-efficient bulbs, effective data collection for analysis, etc. 

Building a sustainable future for DISCOMs

The scheme’s aim was both financial restructuring and creating a rescue plan to save the power companies from losses. Together, these purposes would lead to a sustainable future for power companies. This involved strict measures like no theft of electricity, market-friendly reforms, and so on. It can help turn the loss-making power companies into profitable ones with a business model that can sustain for a long. 

Features of Ujjwal DISCOM Assurance Yojana

  • Borrowing will not be part of the state’s fiscal deficit calculation.
  • The rate calculation will be done based on G-sec in addition to a 0.5% spread. On top of that, for non SLR there will be a 0.25% spread.
  • Five years moratorium period
  • Bond maturity period- Between 10 years to 15 years.
  • States will be issuing non-SLR, which will include SDL bonds to handle debts. Power companies will get the return in equity, grant, and loan.
  • There will be special provisions for Jammu & Kashmir and Jharkhand to clear the union’s dues.
  • State bonds will be used for financing balance losses, and the Ministry of Power will specify the extent of losses. State Government will guarantee it
  • The remaining 25% of the debt will be with power companies provided:
    • They will be in the form of state-backed DISCOM bonds.
    • Banks or financial institutions will revise the price with an interest rate below the base rate + 0.10%.
  • Additional or priority funding will be given to the states accepting the yojana and following it diligently. 

Benefits of Ujjwal DISCOM Assurance Yojana to the states

Here are the advantages to states who are participating in the scheme:

  • There will be a massive reduction in the power cost of these states.
  • States will get the opportunity for additional funding through plans like Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY). 
  • Transparent power purchase mechanism with competitive bidding
  • The benefit of availing additional coal at prices notified
  • Supply of domestic coal at a reasonable amount.
  • Coal prices are rationalized. 
  • Supply of the coal that is crushed and cleaned
  • Fast completion of transmission lines between states
  • Allowing coal swaps as well as linkage rationalization

Impact of Ujjwal DISCOM Assurance Yojana

  • This scheme has led to the development of renewable energy sources.
  • Funds are available at affordable rates.
  • Power plants now have advanced plant load factors.
  • There is improvement in the operations and finances of DISCOMs.
  • Increase in funding/capital investment. 
  • Companies can see an increase in power demand and a reduction in debts.

Next is UDAY 2.0 

In the line of Ujjwal DISCOM Assurance Yojana government has also initiated ‘UDAY 2.0’ for quick payment by power companies, reviewing the gas-based plants, installing smart prepaid meters, and making short-term availability of coal. Also, Rs. 3.05 lakh crore will be utilized to transform DISCOMs. 

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