UDAY scheme will benefit power distribution companies in near to medium-term: ICRA

Domestic rating agency, ICRA in its latest report has said that Ujwal Discom Assurance Yojana (UDAY) scheme, which was launched by the centre to improve performances of the state power distribution companies, will benefit power distribution companies (Discom) significantly in the near to medium-term. However, it also cautioned that strict focus on improving efficiency, timeliness and tariff hike adequacy will be critical for their financial turnaround in the long-run.

Rating agency stated that Discoms will benefit significantly with different measures taken by the government under UDAY scheme like lower interest costs arising out of de-leveraging, and reduction in cost of power procurement arising out of improved domestic coal availability and flexible utilisation of domestic coal linkage and e-auction process for short-term power, as these would reduce cost of power purchase.

The report also pointed that state electricity regulatory commissions (SERCs) in only 20 out of 29 states have issued tariff orders for FY2017 so far, indicating moderate progress in terms of issuance of tariff orders for the year. Till now 16 states and union territories have signed memorandum of understanding for participating in UDAY. De-leveraging and refinancing under the scheme is expected to improve liquidity and profitability profile of Discom's in the near term.

UDAY was launched by the centre to improve performances of the state power distribution companies. ICRA has said that improved domestic coal availability along with recent policy measures by the government such as flexible utilisation of domestic coal linkage and e-auction process for short term power remain favourable for discoms in terms of likely reduction in cost of power purchase.