The power sector is in serious trouble. Non-performing assets (NPAs) among power-generating companies are mounting. There is a shortage of coal. Plant load factor (PLF) is down to 58%. Distribution companies (discoms) are in a bad shape and new power purchase agreements (PPAs) are few and far between.

Launched in 2015, UDAY — Ujwal Discom Assurance Yojana — was to provide much-needed relief, which it did temporarily. UDAY was a framework that had worked in Gujarat. If any ‘Gujarat model’ required replication in other parts of the country, it was this power sector model. But it didn’t happen, at least in the manner it was expected to.

States were to take over 75% of discom debts as on September 30, 2015. This was to ease their fiscal burden and ‘improve’ their balance sheets. But critical elements of UDAY, like reduction of aggregate technical and commercial (AT&C) losses, elimination of the average cost of supply (ACS)-average revenue realised (ARR) gap, feeder metering, and distribution transformer (DT) metering, remain unaddressed. The debt transfer was supposed to provide fiscal space and time to discoms to carry out the more critical part that was supposed to revive them in the mid-term.

Almost all the discoms got on board and utilised the facility to transfer debt to the state government. This improved their financial health, some even showing profits. However, this raised the debt burden of the states quite substantially.

Last year’s Economic Survey revealed that “due to these bonds, the states’ gross fiscal deficit-to-GDP ratio got increased by 0.7%”. Most of the discoms failed to carry out mandates relating to the reduction of AT&C losses, elimination of ACS-ACR gap, etc. Ironically, of all the UDAY states, 13 have actually reported higher AT&C losses as compared to the previous year.

The focus of UDAY was primarily on fiscal restructuring. It was indeed a necessary condition, but not a sufficient one. States were ‘mandated’ to carry out the second and more ‘essential’ part of the deal. But the manner in which this part of the ‘mandate’ should have been carried out may not have been carried out. Monitoring systems were put in place, but the ‘facilitating’ mechanism for the states was not set up.

No extensive field visits or intensive interaction with the stakeholders were adopted. Little effort was made to understand their problems. They could have learnt from states like Gujarat (where UDAY had happened well before it ‘went national’) to replicate the model.

Much time was spent on fiscal restructuring. Equal, if not more, time should have been spent on understanding how AT&C losses were reduced in states like Gujarat, the ACS-ACR gap was reduced and it could be adopted by other states.

Most discoms continue to be in trouble. The fundamental issues remain unaddressed. On account of the poor financial condition of discoms, no new PPAs are being floated, even though there is demand for power. (Incidentally, India’s per-capita consumption of power is one of the lowest in the world, and equivalent to the consumption in late 19th-early 20th century in the US.) There is demand, but discoms don’t have the money to buy power. Above all, the more they sell, the more they lose. This ‘lack of demand’, in turn, is impacting the health of power-generating companies.

Discoms have been turned around earlier. Narendra Modi as Gujarat chief minister proved that good economics also makes good politics. What really needs to be understood is what happened in Gujarat, and howit happened.

Separate feeder lines, auditing, strong action against defaulters and pricing are some of the issues that will need to be addressed. It will require time and effort, and may not provide great material for ‘headlines’. Other state officials will be required to sit with those from Gujarat, and after understanding the howof this success story, they will need to make out their own plans.

These plans can’t be made or monitored in Delhi. Intensive discussions will have to be held with all stakeholders to get their ‘buy-ins’. This is critical for the success of any plan. If it could happen in coal, it can happen in power as well.

Discoms can, indeed, be turned around. They are not merely a problem of the states. They are a problem of the country.