Discoms receive Rs 90,000-crore lifeline to fight Covid-19 crisis

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Updated: May 14, 2020 8:13 AM

Sources said finer modalities of disbursing the loans are currently being worked out, but sector-specific lenders REC and PFC are likely to lend the money at a spread of 150 bps from the competitive rates they will raise the capital.

Covid-19 cases, Discoms, NTPC, Nirmala Sitharaman,central government, industrial consumers, CRISIL Infrastructure Advisory,liquidity package“Appropriate structuring for bond issuance against guarantee will be critical to raise funds in the current tight liquidity situation,” Vivek Sharma, senior director at CRISIL Infrastructure Advisory, noted.

The government has announced a fresh loan of Rs 90,000 crore through PFC-REC to salvage the state-run power distribution companies (discom), which, in turn, also reduces receivables of electricity generation companies. The loans to be given against state guarantees for exclusive purpose of discharging liabilities of discoms to power generators, the government said.

Also, central government-owned power producing companies such as NTPC will give rebate to discoms, which the latter will pass on to its industrial consumers.

Sources said finer modalities of disbursing the loans are currently being worked out, but sector-specific lenders REC and PFC are likely to lend the money at a spread of 150 bps from the competitive rates they will raise the capital.

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Finance minister Nirmala Sitharaman said these loans will be linked to discoms implementing reforms such as digital payments for consumers, liquidation of outstanding dues of the state governments and formulating a plan to reduce financial and operational losses.

“Appropriate structuring for bond issuance against guarantee will be critical to raise funds in the current tight liquidity situation,” Vivek Sharma, senior director at CRISIL Infrastructure Advisory, noted.

Discoms’ dues to power producers stood at Rs 90,577 crore at the end of March 2020, up 41% from a year earlier. About 88% of these (`80,454 crore) were “overdues” with payment default of 60 days or more. Though discoms’ dues have been rising relentlessly (see chart), the situation has become direr due to lower industrial power demand and logistical constraints in revenue collection due to the lockdown. Since about 70% of revenue of
the discoms comes from industrial and commercial customers, lower usage by these categories means additional pressure on these already distressed entities.

“According to estimates, discoms are running a cash deficit of almost Rs 300 crore per day due to Covid-related demand destruction,” Debasish Mishra, leader, energy resources and industrials at Deloitte in India, said.

Welcoming the liquidity package, Ashok Khurana, director-general, Association of Power Producers, said, “This will help generators clear their bank dues and purchase coal to supply power and would ensure continuity of uninterrupted power supply.”

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