UDAY on horizon, but past bailouts disappointing

UNENVIABLE The past experience shows the financial health of UP’s power sector only deteriorated each time ‘a new drug was administered to it’

Going by the experience of past bailouts, it is debatable whether the latest financial package offered by the Centre last month and lapped up by the Akhilesh Yadav government through a Cabinet decision on Friday will really help the state’s power sector see a turnaround and serve consumers more efficiently.

For its part, the state government is preparing to sign an agreement with the Centre soon to avail itself of the Ujwal Discom Assurance Yojana (UDAY), a fresh financial package aiming at bailing the debt-ridden government-owned UP Power Corporation Ltd out of its ever-deepening financial crisis by 2018-19.

The past experience, on the contrary shows, the financial health of the UP’s power sector only deteriorated each time ‘a new drug was administered to it’.

“As a scheme as such, UDAY is a good initiative,” All-India Power Engineers Federation chairman Shailendra Dubey said, adding, “But it is doomed to fail like earlier bailout packages, unless the state government shows the political will, allowing the power sector to run professionally.”

Curiously, UDAY is the fourth bailout package announced by the state/ Centre since the then UP State Electricity Board (UPSEB) was unbundled into three so-called autonomous corporations 15 years ago and all of them have failed to yield desired results. Uttar Pradesh is one of the states that embarked upon structural power sector reforms.

The first financial restructuring plan (FRP) or the bailout package was undertaken in 2000, alongwith the unbundling of UPSEB. But the lack of required measures that were envisaged resulted in a significant cash gaps in 2001, 2002 which resulted in large defaults to Central power generation stations.

When this model failed to work, the state government approved a second FRP along with the unbundling of the UPPCL into a transmission and trading company and four discoms in 2003, expecting the utilities to do a financial turnaround. The plan, including writing off Rs 1,340 crore government loan to UPPCL against past dues, retention by the state government of the GPF liabilities of the employees amounting to Rs 1,337 cr. But a gap in the actual and FRP assumptions failed the plan.

From only Rs 77 crore accumulated losses that the UPSEB had when it was broken into three pieces, the losses jumped to a whopping Rs 24025 crore in 2010-11. Keeping in view the deteriorating financial health of the government discoms in some states, the worst being UP, the then UPA government at the Centre stepped in, formulating and approving a scheme for financial restructuring of state-owned discoms on October 5, 2012. The scheme aimed at enabling the turnaround of discoms and ensuring their long-term viability.

The scheme envisaged that the state government took over 50% of the outstanding short- term liabilities of the discoms while the rest of the short-term liabilities would be restructured with a guarantee from the state government to enable a turnaround and ensure their long-term viability. Additional support was to be provided by the Central government in the form of principal reimbursement and interest subsidy.

But even a heavy dose of Rs 33,000 crore administered by the Centre failed to turn around any improvement in the UPPCL’s financial health. On the contrary, the liability of paying bank interest increased manifold. “On the one hand, the UPPCL failed to achieve the performance targets (like 100% metering, reduction of distribution losses) given under the package to do its turnaround, on the other hand it was trapped in another crisis since it had to pay Rs 5,500 crore interest per annum on the Rs 47,000 crore loan that it could borrow from the banks under the scheme to be able to pay, among other things, its energy dues to the power generating companies.

THE PAST EXPERIENCE, ON THE CONTRARY SHOWS, THE FINANCIAL HEALTH OF THE UP’S POWER SECTOR ONLY DETERIORATED EACH TIME ‘A NEW DRUG WAS ADMINISTERED TO IT’.