Tamil Nadu joins ‘Ujwal Discom Assurance Yojana’

January 10, 2017
1 year

Why in news?

  • Tamil Nadu became the 21st State to join the Centre’s Ujwal Discom Assurance Yojana (UDAY), aimed at turning around the finances of the ailing power distribution companies.
  • TN also signed the 24X7 Power For All document.

How Tamil Nadu benefits from this?

  • With Tamil Nadu joining UDAY, 92 per cent of discom debt has been covered under the scheme.
  • Singing UDAY, TN is expected to gain an overall net benefit of approximately Rs. 11,000 crore by way of savings in interest cost, reduction in Aggregate Technical and Commercial (AT&C) and transmission losses, interventions in energy efficiency, and coal reforms.
  • Under the UDAY scheme, TN will take over 75 per cent of the Rs. 30,420 crore debt of the State’s distribution company, TANGEDCO.
  • The State government will issue bonds to finance this debt. The remaining debt is to be re-priced or issued as State guaranteed discom bonds.

What happened to DISCOMS?

  • Distribution Companies (DISCOMs) in the country have accumulated losses of approximately Rs. 3.8 lakh crore and outstanding debt of approximately Rs. 4.3 lakh crore (as on March, 2015).
  • Thus, they are not able to supply adequate power at affordable rates, which hampers quality of life and overall economic growth and development.
  • In addition, default on bank loans by financially stressed DISCOMs has the potential to seriously impact the banking sector and the economy at large.
  • Thus, DISCOMs are trapped in a vicious cycle with operational losses being funded by debt.

How UDAY will help DISCOMS?

  • The government unveiled UDAY, with the intent to find a permanent solution to the financial mess that the power distribution is in.
  • Adopting UDAY is optional for States, but provides the fastest, most efficient and financially most feasible way for providing 24X7 Power for All.
  • It empowers DISCOMs with the opportunity to break even in the next 2-3 years. This is through four initiatives:
    • Improving operational efficiencies of DISCOMs;
    • Reduction of cost of power;
    • Reduction in interest cost of DISCOMs;
    • Enforcing financial discipline on DISCOMs through alignment with State finances.
  • Operational efficiency improvements like compulsory smart metering, upgradation of transformers, meters etc.,
  • Energy efficiency measures like efficient LED bulbs, agricultural pumps, fans & air-conditioners etc. will reduce the average AT&C loss and eliminate the gap between Average Revenue Realized & Average Cost of Supply by 2018-19.
  • Reduction in cost of power would be achieved through measures such as increased supply of cheaper domestic coal, coal linkage rationalization, faster completion of transmission lines etc.,


  • The ultimate benefit of signing the MOU would go to the people of Tamil Nadu.
  • Higher demand for power from DISCOMs would mean higher Plant Load Factor of generating units and therefore, lesser cost per unit of electricity thereby benefitting consumers.
  • Availability of 24x7 power for all would increase the economic activity and improve employment opportunities in the State.


Category: Mains | GS – II | Govt Policies & Interventions

Source: The Hindu & PIB

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