India Eases Rules to Aid States Clear $4.3 Billion in Power Dues
Power Finance Corp. and REC Ltd. will extend loans to electricity retailers beyond the threshold limit for working capital needs.
(Bloomberg) -- India’s cabinet eased borrowing norms for states to help them repay dues to power generators and spur cashflows in an industry struck by the pandemic.
Power Finance Corp. and REC Ltd. will extend loans to electricity retailers beyond the threshold limit for working capital needs, Prakash Javadekar, information and broadcasting minister, said at a media briefing after the cabinet met.
“This move will help several states and improve liquidity,” he said.
Delayed payments from distribution companies has been straining the finances of Indian power producers. The situation worsened during the pandemic, with electricity demand collapsing, choking cashflows through the entire chain of the industry.
The one-time relaxation will allow electricity retailers in some states to clear 320 billion rupees ($4.3 billion) of dues, power minister R.K. Singh told the ET Now news channel earlier today.
The borrowing limit for working capital by state distribution companies was capped at 25% of their prior year’s revenue, according to rules set by a 2015 debt recast plan. The threshold has come in the way of some states benefiting from a 900 billion-rupee loan program for power retailers.
Distribution companies have sought 1.02 trillion rupees, surpassing the original estimate of 900 billion, Singh said. REC and Power Finance, the two lenders providing the loans, have approved 680 billion rupees of the demand, he said.
The process has been slow, as states take time to weigh the stringent loan conditions, which include a guarantee by the state government.
Overdue payments to generators were 1.2 trillion rupees at the end of June, surging 63% from a year earlier, according to the Praapti portal that tracks such payments.
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