Piyush Goyal’s brilliant idea to make power distributing companies profitable

Piyush Goyal will be remembered as the man who made a landmark turnaround in power distribution across India. The goal of 100 percent electrification and a 24 hour supply of electricity could not be realized without making power distribution efficient. The power distribution companies (DISCOM) are lost in a vicious debt cycle  since Independence, and in most states these companies are owned by the respective state governments which ultimately have to bear the losses of these companies. Sometimes states give money from the budget to these companies, but they had  not been able to find a permanent solution to this problem.

Piyush Goyal came up with a sightly unconventional and out of the box solution to this problem. Under the Ujwal  Discom Assurance Yojana or UDAY scheme launched in November 2015, these companies will be able transfer 75 percent of their debt to the state government. UDAY seeks to empower loss making Discoms to break even in two to three years by helping the Discoms in improving their operational efficiencies. These would include compulsory smart metering, upgrading transformers, popularising LED bulbs, reducing the cost of power by increasing supply of cheaper domestic coal, liberal coal swaps from inefficient to efficient plants, supply of washed and crushed coal and faster completion of transmission lines.

The reasons behind Discoms’ losses were political and bureaucratic in nature. For example, these companies were supplying power for household and agricultural use below the costs only because the government wanted them to do so. The theft of power was largely prevalent in rural areas, and thousands of households with dues to these companies had no intention to payback. To pay the 75 percent losses, the government will issue bonds with the help of banks and other financial institutions. These bonds can then be purchased by banks, financial institutions and individuals as equity in these companies. The remaining 25 percent of debt will be transferred to banks as loans with interest rate no more than 0.1 percent above their base rate. In return for the bailout, the Discoms have been given target dates from 2017 through to 2019 by which they will have to meet goals of reduction in power lost through transmission, theft and faulty metering. This can be done by installing smart meters and implementing GIS (geographic information system) mapping of loss making areas. 

The states of Gujarat, Chhattisgarh and Haryana have been able make their Discoms profitable through this scheme. In the state of Haryana, both Dakshin Haryana Bijli Vitaran Nigam (DHBVN) and Uttar Haryana Bijli Vitran Nigam (UHBVN) have posted a combined profit of Rs 115 crores after they joined the Ujwal Discom Assurance Yojana (UDAY) financial rescue scheme. These companies were suffering losses for almost two decades, and have now been able to post profits just two years after the launch of UDAY, which indicates efficiency and effectiveness of this scheme.

Piyush Goyal is known for his innovative ways and ‘out of the box’ thinking. He has been able make those discoms profitable which were in a vicious cycle of debt for decades. Most recently, he came up with a brilliant way of increasing revenues by cracking down on the menace of ticketless travellers on Indian trains, which are more in number than one might imagine. If companies in other states like Uttar Pradesh, Bihar and Madhya Pradesh turn profitable, then Piyush Goyal would add another feather to his cap and be remembered as the man who single handedly provided electricity to all areas for 24 hours.