Ujwal DISCOM Assurance Yojana for dummies

Last Modified: Tue Apr 05 2016 14:11:59 GMT+0530 (India Standard Time)
  • #1
    There are 3 players involved: Power Distribution Companies (DISCOMS), Banks and State Govts.
  • #2
    DISCOMs owe huge sums of money (debt) to banks: Rs. 4.3 lakh crore as on March, 2015.
  • #3
    DISCOMS are also making huge losses: Rs. 3.8 lakh crore as on March, 2015.
  • #4
    The combined DISCOM debt has put the banking system under tremendous duress. It also means, Indian industry is denied such huge sums of money that could otherwise be used for various projects.
  • #5
    Citizens and industries of the states suffer as they are denied 24x7 power due to the mess the DISCOMS are in. This in turn reflects poorly on the state.
  • #6
    States will take over 75% of the DISCOMS debts over a period of two years.
  • #7
    States will also take over future losses of the DISCOMS in a phased manner.
  • #8
    Freed from their debt burden, DISCOMs can now use the money that was otherwise being used to service debt to buy stuff they need to generate power.
  • #9
    States will issue bonds to the banks against the debt they took over from the DISCOMs. 25% of the debt not passed to States by DISCOMs will also be converted to bonds.
  • #10
    Now banks have collateral that will ensure they do not declare DISCOM debt as bad debt/non-performing asset.
  • #11
    So what are the states getting for all the debt they took over? Additional / Priority funding through various schemes run by the power ministry, including coal and power at a lower cost.
  • #12
    So far this has been a lot of money moving in circles on paper. But where is the cash?
  • #13
    Enter player #4 - Domestic Investment Institutues (DIIs) such as LIC and Employees' Provident Funds Organisation. States can issue bonds to DIIs or banks can sell the bonds in the secondary market.
  • #14
    With money now in the sytem, and more importantly, the banks being able to get rid of the debt on their books, they can start lending again. This is so so vital if the Indian economy has to revive.