Cabinet extends UDAY scheme deadline

The Cabinet approved an extension in the deadline for implementing the Ujjwal Discom Assurance Yojana (UDAY) by a year to March 31, 2017.

The UDAY scheme is aimed at bringing ailing power distribution companies (discoms) to a state of operational efficiency, with state governments taking over up to 75 per cent of their respective discoms’ debt and issuing sovereign bonds to pay back the lenders. The Cabinet decision extends this provision from the earlier deadline of March 31, 2016.

“The time limit has now been extended by one year from the earlier stipulated date of March 31, 2016,” according to a government statement. “This decision would allow states, which could not participate in UDAY earlier to join the scheme.”

The extension of the timeline is also to give states that have given their in-principle approval a little more time to order their finances before signing the official document, according to experts.

States get a breather

“Before they go into this, the states have to do their own financial restructuring,” Kameswara Rao, Partner, Energy & Utilities at PwC, said. “From in-principle approval to actually signing is a slightly circuitous path, so this will take time.”

“The scheme has its own merits and demerits from the states’ point of view,” K. Ravichandran, Senior Vice President and Co-Head, Corporate Sector Rating, ICRA said. “Many of them are weighing the pros and cons, so this decision is to give them time. It shows the government is expecting some more states will join the scheme.”

“UDAY envisages a permanent resolution of past as well as potential future issues of the sector,” according to the statement. “It empowers discoms with the opportunity to break even in the next 2-3 years.”

Reducing interest burden

The scheme seeks to achieve this through several simultaneous steps including reducing the interest burden on the discoms by allowing the states to take over the bulk of their debt, reducing the cost of power, and increasing the operational efficiencies of the discoms by providing capital and infrastructure like coal linkages.

So far, 19 States have given in-principle approval to join the scheme, out of which 10 states—Rajasthan, Uttar Pradesh, Chhattisgarh, Jharkhand, Punjab, Bihar, Haryana, Gujarat, Uttarakhand and Jammu & Kashmir—have signed MoUs with the Centre.

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Printable version | Feb 24, 2020 8:16:20 AM |

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