The government's ambitious Ujwal Discom Assurance Yojana (UDAY) will lead to annual savings of Rs 1.8 lakh crore by 2018-19. "It will be savings worth Rs 1.8 lakh crore, which means saving of Rs 1.2 per unit when compared to business as usual. Banks do not have to take any haircut under UDAY," explained Piyush Goyal, Union Minister for Power, Coal and Renewable Energy.
The proposed saving is on account of energy efficiency to be achieved by reduction in interest rate, takeover of discoms debt by states, reduction in aggregate technical and commercial (AT&C) losses by discoms.
"The states will be assisted and hand held to bring down the cost of power by improving their distribution, transmission and sub transmission network, reducing the cost of power through coal rationalization and also bringing down the interest cost substantially," he said.
The banking sector as a whole has significant exposure to the near bankrupt state-run discoms to the tune of Rs 4.3 lakh crore in principle alone and over Rs 5 lakh crore if interest and unpaid dues are counted. These discoms have accumulated losses of about Rs 3.8 lakh crore.
Under UDAY, states can take over 75 per cent debt as on September, 2015 and payback lenders by issuing bonds. This debt takeover will not be added to the fiscal deficit of the states. For the remaining 25 per cent, the State Electricity Boards shall issue bonds.
Goyal assured that the state-run Power Finance Corporation and Rural Electrification Corporation, which have an exposure of around $20 billion to the discoms, will not be forced to buy the bonds to be issued by the respective states under the scheme at 8-8.5 per cent yield.
He also said this was aimed at protecting the balance sheet of PFC, which gets loans at 7.5 to 8 percent. "We will not stress PFC and REC's balance sheets with these bonds which will be priced at 8-8.5 percent. It could only affect their working capital requirement," he said.