Covid-19 Economic Package: REC, PFC To Extend Loans To Power Discoms To Pay Dues To Producers
The six-week-long lockdown on account of Covid-19 and a drop in economic activity has led to a big fall in revenue for already beleaguered power distribution companies in India.
Power discoms currently owe Rs 94,000 crore to power producers and transmission companies, said Finance Minister Nirmala Sitharaman as she spelt out the details of Atmanirbhar Bharat Abhiyan—India’s Rs 20-lakh-crore Covid-19 economic package.
To enable them to make these payments, public sector companies Power Finance Corporation Ltd. and REC Ltd. will extend loans of up to Rs 90,000 crore to the power discoms companies. These loans will be against state guarantees, the finance ministry’s presentation said.
The loans will be linked to certain conditions:
- Digital payments facility for consumers
- Liquidation of outstanding dues of state governments
- Plan to reduce financial and operational losses
The move is a big positive, said Vivek Sharma, senior director - energy at CRISIL Infrastructure Advisory, as it will ease liquidity pressure.
However, appropriate structuring for bond issuance against guarantee will be critical to raise funds in the current tight liquidity situation. Besides, this is certainly a short-term measure. The larger issue of discom financial sustainability and turnaround remains a matter a concern.”Vivek Sharma, Senior Director - Energy, CRISIL Infrastructure Advisory
“Discoms were not getting subsidy amount from the government and even the tariff hike had not happened in line with cost. So, a cash flow mismatch issue was there. Liquidity issue had affected the entire industry value chain,” Rupesh Sankhe, vice president-research (power and renewable) at Elara Capital, told BloombergQuint. “This will be positive for sector lenders like PFC, REC, and generator companies like NTPC, NHPC, SJVN, Power Grid Corporation and private players to reduce working capital.”
According to Girishkumar Kadam, power sector head at ICRA Ratings, liquidity support, if implemented, will certainly help the discoms to improve their payment pattern and clear dues towards independent power producers, given the impact on revenue and cash flows after covid lockdown. “Such support, however, may come subject to conditions and other features so as to improve the discipline/efficiency focus by the discoms.”
The finance minister also said relief would be provided to consumers. “Central public sector generation companies shall give rebate to discoms, which shall be passed on to the final consumers,” the presentation slide showed.
Concessional financing by financial institutions and rebates by CPSEs will ensure operational readiness of discoms to tide short-term liquidity issues. It will assist the sector value chain players, said Sambitosh Mohapatra, partner-power and utilities at PwC India.