Fresh Liquidity Infusion: PFC, REC may link discom loans to state guarantees

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Published: April 11, 2020 12:40 AM

In the wake of such developments, the Union power ministry is deliberating on a plan to infuse liquidity in through Centre-run PFC-REC.

According to government sources, the modalities of funding the discoms to enable them to pay generators are currently being worked out.According to government sources, the modalities of funding the discoms to enable them to pay generators are currently being worked out.

Centre-run power sector lenders PFC and REC are likely to seek state government guarantees against the additional loans that would be given to state-run power distribution companies (discoms) to help them cope with the current coronavirus-induced crisis. According to government sources, the modalities of funding the discoms to enable them to pay generators are currently being worked out. However, such funding would require the relaxation of FRBM norms for a number of states which have crossed their borrowing limits under the current norms.

Discoms are finding it difficult to continue meter reading exercises and collect payments from consumers amid the country-wide lockdown to contain the outbreak of coronavirus, which in turn, is raising the risks of clearing the bills of power generators. Overdues — payment default of 60 days or more — from discoms to power producers were already at Rs 80,387 crore at February-end. In the wake of such developments, the Union power ministry is deliberating on a plan to infuse liquidity in through Centre-run PFC-REC. However, the monetary value of the relief has not been ascertained yet.

In a meeting held between Union power secretary Sanjiv Nandan Sahai and state power department officials on Thursday, some states have also sought the suspension of the condition of the Ujwal Discom Assurance Yojana (Uday) scheme, which allows discoms to borrow only upto 25% of their previous year’s revenue as working capital from banks and financial institutions. Other demands of the discoms are easing of NPA classification, discount on fixed charges payable to generators when power is not being procured from plants.

Amid revenue shortfall, the current crisis has also raised uncertainties regarding subsidy releases by states and payments of other government dues. Also, as noted by India Ratings, “discoms would have to incur higher aggregate technical and commercial (AT&C) losses than the levels specified by the regulators, as the transmission and distribution loss incurred on residential consumers is far higher than that incurred on industrial/commercial consumers, which could result in under-recovery”.

As FE reported recently, daily power demand in the first six days of FY21 has fallen by a sharp 26% year-on-year, owing to reduced industrial and commercial activities. Discoms traditionally face cash-flow issues because the state electricity regulators infrequently and inadequately raise consumer tariffs. Dues from state government departments and local civic bodies, pegged at a whopping Rs 50,000 crore at the end of September 2019, also significantly impair the discoms’ ability to turnaround.

The move to fund discoms through PFC-REC has technically thrown a spanner on the Union government’s plan to discipline rickety discoms. Union power minister RK Singh told FE that a new scheme in the works envisaged laying a big emphasis on prudence. He said it would also include depriving discoms, failing to traverse a glide path for AT&C loss reduction to be agreed upon among the Centre and states, of their principal source of loan finance, namely Centre-run PFC-REC.

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