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Ask an Expert - Power

Kameswara Rao

Leader (Energy, Utilities and Mining), PwC India

Topic: Power

A revised tariff policy, the financial restructuring under UDAY, and enhanced fuel availability offer utilities better prospects than ever on the regulatory, financial and supply aspects. With coal imports coming down and no power plant reporting fuel stocks at critical levels, one of the persistent problems that ailed power generation has been addressed. The efforts on enhancing energy security are succeeding on both fronts. On the demand side, a shift to LEDs and energy-efficient appliances has slowed down growth in power use. On the supply side, the share of renewable energy has grown to 13 per cent even as its costs have come down.

The success of the UDAY scheme hinges on structuring of discom-debt takeover. However, this takeover by the states could cause a deterioration in their fiscal health. What can the Budget do to mitigate this?


The scheme's provisions offer reduced interest costs, and an opportunity to save on the cost of bulk power. So, it's not a zero-sum game, and to a degree, state governments benefit from lower financial burden. For the larger part, however, state governments have the accountability and the tools to address the fiscal impact. The provisions of the new tariff policy requiring cost-reflective tariffs, if properly implemented, can reduce discoms’ demand for state government subsidy. Further, state governments should actively use the distribution franchisee model to reduce AT&C losses. If the tariffs offered by private operators in the recent tenders are a guide, then a sizeable portion of the government subsidy can be avoided.

What provisions do you see the government making in the Budget for the UDAY scheme?


There may not be any direct budgetary provision. The scheme essentially allows states a limit for fiscal deficit higher than the FRBM-mandated one to hold the restructured debt of discoms. The central government could, however, enhance the budgetary support under its other flagship schemes for rural electrification, network upgrade, and improved energy efficiency.