State governments owed their power distribution companies have Rs 1.4 lakh crore in subsidy receivables and unpaid bills of government departments as of March 31.


Performance of state power discoms

  • State utilities reported a fall in average reduction in (AT&C) losses to 20.9 per cent in FY20 from 23.7 per cent in FY16.
    • AT&C loss is the sum total of technical and commercial losses and shortage due to non-realisation of billed amount.
  • They also reported a reduction in the ACS-ARR gap to Rs 0.30 per kWh in FY20 from Rs 0.48 per kWh in FY16.
    • ACS-ARR gap — the gap between average cost of supply (ACS) and average revenue realised (ARR).
  • UDAY was aimed at providing a permanent resolution to the financial issues in the power sector, but did not meet its stated objectives.
    • This led the government to announce a new Rs 3.03-lakh crore incentive-based reform scheme for discoms.


Key highlights

  • Unpaid subsidy receivables and dues are prime causes of the continuing difficulties in the power sector —
    • The total overdue of discoms towards power generating companies (gencos) stood at Rs 1.1 lakh crore.
    • This means, if discoms are paid accordingly by the State governments, they can clear their dues to gencos and still be left with surplus money.
  • Large government outstanding create vicious cycle —
    • Large government outstanding hit revenues of discoms, which stop paying gencos on time.
    • The discoms have to borrow at high cost to keep running their operation.
    • The piling dues of gencos force it to borrow to maintain operations.
  • Government dues point towards larger problems — The government dues to discoms underline poor financial condition of states, lack of accountability and political motivations of populism overwriting commitment to reforms.
  • Way forward —
    • Dues of central generation or coal companies can be recovered by deducting the amounts from the concerned state’s share of taxes under a tripartite agreement among the Centre, RBI and states.
    • This provision has rarely been invoked  and if this trend continues, Centre must invoke this.


Reforms-based and Results-linked, Revamped Distribution Sector Scheme

  • The Scheme seeks to improve the operational efficiencies and financial sustainability of all DISCOMs/ Power Departments excluding Private Sector DISCOMs by providing conditional financial assistance to DISCOMs for strengthening of supply infrastructure.
  • The assistance will be based on meeting pre-qualifying criteria as well as upon achievement of basic minimum benchmarks by the DISCOM evaluated on the basis of agreed evaluation framework tied to financial improvements.
  • Implementation of the Scheme would be based on the action plan worked out for each state rather than a “one-size-fits-all” approach.


Objectives of the scheme

  • Reduction of AT&C (Aggregate Technical and Commercial) losses to pan-India levels of 12-15% by 2024-25.
  • Reduction of ACS-ARR (Average Cost of Supply – Average Revenue Realised) gap to zero by 2024-25.
  • Developing Institutional Capabilities for Modern DISCOMs.
  • Improvement in the quality, reliability, and affordability of power supply to consumers through a financially sustainable and operationally efficient Distribution Sector.



  • The Scheme provides for annual appraisal of the DISCOM performance against predefined and agreed upon performance trajectories including AT&C losses, ACS-ARR gaps, infrastructure upgrade performance, consumer services, hours of supply, corporate governance, etc.
  • The Scheme has a major focus on improving electricity supply for the farmers and for providing daytime electricity to them through solarisation of agricultural feeders. This Scheme converges with the Pradhan Mantri Kisan Urja Suraksha Evem Utthan Mahabhiyan (PM-KUSUM) Scheme, which aims to solarise all feeders, and provide avenues for additional income to farmers.
  • A key feature of the Scheme is to enable consumer empowerment by way of prepaid Smart metering to be implemented in Public-Private-Partnership (PPP) mode. Smart meters would allow consumers to monitor their electricity consumption on a routine basis instead of monthly basis, which can help them in usage of electricity as per their own needs and in terms of the resources available. 
  • Looking into the scattered nature of agricultural connections and their remoteness from the habitations, agricultural connections would be covered only through Feeder Meters.
  • Artificial Intelligence would be leveraged to analyse data generated through IT/OT devices including System Meters, prepaid Smart meters to prepare system generated energy accounting reports every month to enable DISCOMs to take informed decisions on loss reduction, demand forecasting, Time of Day (ToD) tariff, Renewable Energy (RE) Integration and for other predictive analysis.


What is UDAY scheme?

  • Ujwal DISCOM Assurance Yojana aimed to provide financial and operational turnaround of power distribution companies and aimed at long term affordable and accessible 24×7 power supply to all.
  • It had a target of making all DISCOMs profitable by 2018-19 through four initiatives such as 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.
  • Under this programme, States had to take over 75% of DISCOM debt over two years i.e 50% of DISCOM debt shall be taken over in 2015-16 and 25% in 2016-17.
  • States were to issue non-SLR including SDL bonds (state development loans) in the market or directly to the respective banks / financial institutions (FIs) holding the DISCOM debt to the appropriate extent.
  • DISCOM debt not taken over by the state were to be converted by the banks / FIs into loans or bonds.