New Delhi: State power distribution companies have started reporting handsome savings and improvements in operational efficiency after local authorities refinanced utility debt with over Rs1.6 trillion worth of state bonds and found ways of cutting down power theft under the debt restructuring-cum-turnaround scheme, the Ujjwal Discom Assurance Yojana (UDAY), rolled out 15 months ago, according to a review by the Union power ministry.

Utilities in Rajasthan, Haryana, Chhattisgarh and Punjab are among the major gainers in lowering their interest cost. Three state-owned power utilities in Rajasthan have reported that their collective interest cost in 2016-17 will drop by half to Rs4,739 crore, compared to what they incurred a year ago, according to the review. The projection for the current financial year is based on the interest cost savings made in the first half of the year.

The Rajasthan government is refinancing Rs60,500 crore of the collective debt of Jaipur Vidyut Vitran Nigam Ltd, Jodhpur Vidyut Vitran Nigam Ltd and Ajmer Vidyut Vitran Nigam Ltd under the scheme.

Dakshin Haryana Bijli Vitran Nigam Ltd, which has turned around and reported a small profit in the first half of this year, has projected a saving of ₹ 66 crore in interest cost for FY2017 as the liability comes down to ₹ 1,005 crore for the year.

Chhattisgarh State Power Distribution Company Ltd projected a saving of ₹ 526 crore as interest cost in the current financial year falls to just 19% of what was in 2015-16.

Fifteen states with loss-making utilities, out of the 21 that signed up for the scheme, have been allowed by the finance ministry to refinance their collective utility debt of ₹ 1.94 trillion so far. The remaining over ₹ 4,000 crore of debt is set to hit the market shortly. Six states with healthy utilities signed up for UDAY only for operational benefits.

While savings in interest cost from the debt restructuring is evident, consolidating the turnaround will hinge on how utilities make sharp cuts in losses from transmission and theft (called AT&C losses) and close the gap between their cost of supplying power and the revenue realised. Although utilities in states like Goa, Jharkhand and Puducherry have reported improvements on this front, such losses still are high in many states with 47% in Bihar and over 71% in Jammu and Kashmir.

States are devising various ways to cut these losses. Haryana government increased electricity supplies to ensure uninterrupted energy access in areas where electricity bill payment is prompt, while Manipur experimented with pre-paid metering and naming and shaming of defaulters. Finance departments in state governments are paying special attention to reducing losses of utilities as these will be counted as part of the state’s fiscal deficit from 2018-19.

However, interest costs and other operational expenses account for only a relatively smaller part of the overall cost of a distribution company, about 80% of which is its power purchase cost, which needs to be kept under control. Experts say utilities need to make sure that industrial consumers do not switch to other sources of power such as power exchanges.

“Along with large scale metering and loss reduction programmes, discoms should take urgent measures to optimize their power purchase cost and rationalise tariff to retain and attract high value (industrial) customers. As the demand picks up (due to GDP growth, the Make in India drive, electrification and 24x7 power) and gap between cost of service to revenue realised is bridged, many utilities will become profitable in the next two-three years, said Sambitosh Mohapatra, partner, energy utilities and mining, PwC India.

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