Power sector has been very opaque since its inception, to make this sector more transparent and operative, ministry of power along with the assistance of government of India and state rolled out a number of policies such as Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY), Integrated Power Development Scheme (IPDS), and Power Sector Development Fund (PSDF). One of which is their prominent scheme is UDAY (Ujjwal DISCOM Assurance Yojana).

India is the 5th largest producer of electricity in the world with a capacity of 302 gigawatt. Sources of power generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to viable non-conventional sources such as wind, solar, and agricultural and domestic waste. In India state, center and private generators of electricity use COAL as there major source of raw material. The three stages of power transformation to electricity consist of;


2) Transmission



UDAY’s primary motive is for financial turnaround revival of discoms (distribution companies) and curbing the debilitating health of distribution companies owned by state governments. The Scheme aims at:

  1. Improving operational efficiency of Discoms;
  2. Reduction in cost of power;
  • Financial Turnaround – Reduction in interest cost of Discoms
  1. Enforcing financial discipline on Discoms through alignment with State finances


In India maximum of power distribution companies are government owned.

The policy primarily aimed at transferring almost 75% of the discom debt to the state governments and reducing interest cost burden on the remaining 25% debt. And the break up which is 50% in Financial Year 2016 25% in Financial Year 2017

Agency funding Nature of support % of project cost
    Other than special state Special state*
GOI Grant 60 85
Discomm contribution Own 10 5
FI’S/banks Loan 30 10
Adittional grant Grant 50% of total loan
Maximum can be granted grant 75% 90%
  • Special category*: Arunachal Pradesh,Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura and Uttarakhand.

MILESTONE: (for additional grant): Timely completion of the scheme, Reduction in AT&C losses as per trajectory. Discoms to comply with the Renewable Purchase Obligation (RPO)

States will issue Non SLR bonds in the market or to the respective banks and financial institution for a period of 10 years at a pricing set by RBI’s bond rate.

The remaining debt of 25% will be issued by banks or financial institution which they can issue as State Guaranteed bonds interest rate not more than the bank’s base rate plus 0.1% in the market.

FOCUS AREA:  Sub-Transmission & Distribution System Upgradation, Metering,  Completion of Optical Fiber Missing Link under NOFN,  Solar Panels on Government Buildings,  National Power Data Hub at CEA


According to IMF report, UDAY has been showing remarkable trends in curbing the debilitating health of distribution companies from a massive Rs 4.3trillion dollar debt and annual losses of Rs 600 billion. The total of accumulated losses is constituted by AT&C losses (aggregate technical and commercial losses). Which are primarily due to inefficiency in billing and collection.

Out of the total debt of INR 3.8 trillion (USD 58 billion) attributable to the 27 UDAY states and union territories, 61% has been already transferred to state governments and/or refinanced in the form of state government guaranteed bonds. Another 10% is expected to be similarly restructured shortly. These measures alone are expected to reduce annual aggregate interest cost burden by Rs 160 billion (down 65%)


  1. Consumers
  • Availability of cost effective electricity
  • Availability of 24*7 electricity in the remote areas
  1. Industry
  • Lower cost of power: As the plant load factor will increase due to economies of scale , and proper utilization of power.
  • Coal swap: Government will foster this action of coal swap under which the Coal will be swapped between industries based on the need of a particular calorific value, industry or state. To facilitate proper utilization of energy.
  1. Banks and investors
  • Loan burden off the books of banks/ financial institution thus improving the loan giving facility of banks.
  • Lower risk for existing investments and loans in power, coal and renewable sector.
  • Lower capital adequacy provisions as direct exposure to state governments would attract 0% risk-weight.
  • Increased revival of  existing power projects suffering from low Plant Load Factor
  • Reduces investment uncertainty across the sector
  1. Additional benefits of state
  • States accepting the scheme and performing as per operational milestones will be given additional/ priority funding
  • States FRMB limit wouldn’t be affected, hence giving them leverage of increased Capital Expenditure.
  • More capex will foster development in the state
  • It will also help in increasing the GDP of the state.
  1. Discoms
  • Operational and financial efficiency
  • Lower cost of interest
  • Lower cost of power
  • Fund availability for future
  • Less burden on books of accounts
  1. Government
  • Power to 5 cr households which are without electricity
  • Speedy electrification of remaining 18,500 village
  • Energy generation from renewable sources
  • Reduce Current Account Deficit (CAD) from higher import
  • Creating jobs in power sector
  • Increase capital expenditure

ACS: Aggregate cost of supply and Average Revenue Realized*

AT&C: Aggregate technical and commission losses*

The benefit of this scheme will be to distribution companies but the transmission and power finance companies will also reap the benefit, as we can see that states who adopted this scheme have tremendously decreased there ACS-ARR gap and also AT&C losses. Generation has no relation to this scheme reason being that generation is only affected by coal cost plus pricing and however coal ministry has directed government owned and operated thermal power producers to stop all imports as there was now a surplus of fuel available from state miner Coal India. The coal production has increased from 494 MMT FY 14-15 to 550MMT FY 15-16.


  • Rural Electrification Corporation Limited (REC)
  • National Thermal Power Corporation (NTPC)
  • National Hydro-electric Power Corporation (NHPC)
  • Power Grid Corporation Limited (PGCL)
  • Power finance companies (PFC)





Rural electrification corporation limited ·         Total income increase to Rs 5925cr from Rs 5066 cr

·         Profit after tax increased to Rs. 1,619 cr from Rs 1504 cr

·         A 30% loan decline in the loan asset book

·         benefited by Rs 10,000 cr in FY16

·         Repayment of loan has become faster as discom have cash flows.

·         Lesser interest rate in discom books

·         Lesser provisioning for bad debts

National Thermal Power Corporation (NTPC)


·         Saving in Rs 7300cr , per unit saving , Rs 0.30

·         Saving in Rs 1270 cr, per unit saving of Rs 0.05

·         Substituting imported coal, MoU/E-Auction coal by 100% ACQ coal

·         Rationalization / swapping of coal sources including freight charges

Power Grid Corporation Limited (PGCL)


·         Asian Development Bank (ADB) has approved $175 million loan

·         Government of India and World Bank Sign US$ 470 Million Loan Agreement

·         To expand solar energy transmission network in the country

·         Execution of major transmission lines tenders to various companies

·         The effects of these collaborations can be seen in the future revenues of Power grid.

·         To improve the power supply in the eastern region.





Power  finance companies


·         It got Rs 4,500 cr as loan prepayment from SEBs in FY16 ·         Lesser provisioning for bad debts

·         Repayment of loan has become faster as discom has cash flows.

·         Lesser interest rate in discom books

·         Transformers and rectifiers India ·         It has secured Rs 103cr project from power grid
·         KEC ltd ·         Order value is Rs. 320 cr and project duration is 32 months. Total line length is 178 kms for circuit transmission line on turnkey basis


·         Kalpatru ·         It has secured an order of Rs 1320 cr for transmission line supply project
·         B S ltd ·         It has bagged orders aggregating to Rs 117 cr. These orders are for the supply of 765/400 KV transmission line towers
·         Alstom ·         company, bagged two contracts valued at Rs 202 cr from Power Grid Corporation for projects in Madhya Pradesh
·         Seimens ·         It  has won an order worth approximately Rs 570 cr to supply static synchronous compensator 
·         Emco ltd ·         It has got an Rs. 458—cr orders from PowerGrid Corporation for execution of a transmission line.
·         Avantha Group ·         It has bagged orders worth over Rs 231 cr from Power Grid Corporation for supplying equipments to state run power grid’s
·         Essel infra ·         It has secured Rs 383.4 cr per annum order for connect the nation’s power grid to the southern region





Approximately 90% of the total estimated debt of these states  has been covered under the UDAY . An amount of Rs 326.98 cr  has been released by MoP. We believe that the interest cost savings from these restructuring would be invested in advanced equipment so as to bring down AT&C losses by improving operational efficiency. With reduced ASC-ARR gap and improved cash flow the sector may witness revival in power demand by the Discoms, however, we believe that these incremental benefits would accrue over a period of next 2-3 years. While, the Center and the States are making sincere effort to improve operational efficiency and lower interest burden, the success of UDAY will largely depend upon the ground level execution of the strategies adopted under UDAY so as to bring down their AT&C losses and timely tariff revisions.

As investment purpose an investor should keep track of the above mentioned stock as they are likely to gain sooner or later from this scheme as it addresses the pain area for the above mentioned stock and will see a revival of the power sector in the long run.

-Report by Aditi Seth