Vasundhara Raje Scindia's Rajasthan likely to be first to take UDAY reforms

Rajasthan could likely be the first state to take electricity distribution sector reform scheme UDAY. The state chief secretary, RS Rajan confirmed to Business Today that the state is ready, it has done its bit of calculations. The state is facing a huge accumulated debt of Rs 85,000 crore, the most in the country.

The scheme is optional. But Rajasthan has no option but to accept it, as central bank RBI also put Rajasthan, along with Uttar Pradesh, Haryana and Tamil Nadu on notice, asking them to cut these losses or banks will stop supporting them.

Top officials in power ministry confirmed that they are finalising the documentation, and expect the signing of the MoU next week.

Rajan further said that there are certain formalities, which needs to be fulfilled before the MoU can be signed with the Union government.

The scheme required states, like Rajasthan, to take 50 per cent of the debt till September 2015 from books of distribution companies to their own books in the first year.  And followed by another 25 per cent in the next year.

The Rajasthan government is allowed to issue ordinary bonds to fund this debt. Rajasthan will also have to rationalise the tariff, and cut the aggregate technical and commercial (AT&C) losses.

Power minister Piyush Goyal has committed priority allocation of coal for state's power plants, and funds of Deen Dayal Upadhyay Grameen Jyoti Yojna and Integrated Power Development scheme. The scheme also allowed relaxation for states as neither debt nor interest will accumulate in the fiscal deficit reporting under FRBM act.

Officials in the power ministry hope soon other states too will also line up to sign the MoU accepting the terms and condition of this scheme.

However, two critical states Uttar Pradesh and Tamil Nadu are heading for elections, and the political leadership in these states are not that inclined to increase the tariff.

But if BJP governed CMs like Vasundhara Raje Scindia, Haryana's Manoharlal Khattar, Jharkhand's Raghuvir Das and NDA's Chandrababu Naidu come on board, Goyal can exert more pressure on other states.

All these states are either on the verge of bankruptcy or reaching there. The other states including UP, Bihar, Telangana too are in bad shape. States like Punjab and Madhya Pradesh are undergoing reforms on their own, but to speed up the process, they too are contemplating joining this scheme. All they would need is discipline and political will to cut AT&C losses and improve recovery of tariff.    

The distribution reforms are critical, even for the solar expansion Vasundhara Raje's government is looking for. The state is in process of setting up 4 GW solar power units and parks. The CS spoke to BT, on the sidelines of Rajasthan Resurgent investor summit. The state government announced the signing of MoUs worth Rs 3.30 lakh crore, and out of them there are proposals of roughly Rs 1.9 lakh crore to set up solar energy units. Rajan added: "We have told these players that state government is not in a position to sign the power purchase agreement, they may have to find the buyers elsewhere. But we can build the evacuation facilities to support this."