ith the chances of meeting the UDAY target to limit the aggregate technical and commercial (AT&C) losses of electricity distribution companies (discoms) to under 15% by FY19-end virtually nil, the government has cited factors such as inadequate hikes in power tariffs, incremental rise in ‘open access’ transactions and outstanding dues accumulating from state government departments as the main hurdles.

In its latest note on the progress of the revival scheme for discoms—launched in November, 2015 —the power ministry said that outstanding dues from state government departments have jumped by 22% annually to Rs 35,603 crore in FY18, severely hurting cash flows for discoms.

The ministry has also pointed out that Andhra Pradesh, Assam, Chhattisgarh, Maharashtra, Telangana and Uttar Pradesh have not raised electricity tariffs according to the trajectory agreed while signing into the UDAY scheme, making it difficult to narrow the gap between the costs of supply and revenue realised. These states consume more than 35% of the country’s electricity.

Rising number of open access consumers—mostly industrial users buying power directly through generators or power exchanges, bypassing the discoms—has significantly impacted the revenue stream of the state-owned entities. The size of the bilateral and power exchange market increased by 38% annually in FY18 to Rs 30,427 crore. An expert familiar with discom operations told FE that since open access electricity consumers frequently revise their power procurement schedule on the basis of their daily load requirement, discoms are compelled to deviate from their energy drawl schedule, incurring heavy penalties. There were 4,248 open access consumers in the Indian Energy Exchange in FY18, recording a 9.5% compound annual growth rate since FY14.

Additionally, the power ministry is also sceptical about the capacity of the market to absorb UDAY bonds worth nearly Rs 37,000 crore. At the end of September 30, AT&C losses — the jargon for electricity units for which revenue is not realised on account of pilferage — suffered by the discoms in 27 UDAY states/UTs stood at 20.6%. The government’s new proposed tariff policy suggests that AT&C losses above 15% won’t be compensated through tariffs after FY19, which means that discoms would not be reimbursed for their inefficiencies through higher consumer bills.

Financial losses of UDAY discoms fell to Rs 15,049 crore at the end of FY18 from Rs 37,877 crore in FY17, according to provisional data. Audited data are publicly available only till FY16. Apropos, discoms’ outstanding dues to power generators surged 150% annually to Rs 32,071 crore in FY18. In a recent interview power minister RK Singh told FE that currently a new version of the UDAY scheme is being formulated, which would fcous its target on AT&C losses through cutting down pilferage and shortcomings in billing and collection.