FM Sitharaman’s Rs 90,000 crore lifeline for power sector slowed down by red tape

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July 16, 2020 6:09 PM

Meanwhile, India’s electricity sector, already burdened by perennial losses and unpaid bills, is now seeking to recover lost cash flow after efforts to tame the coronavirus pandemic caused a sharp drop in power demand.

For states to receive the funds, they must lay out their plans to turn around their electricity distributors, a regular requirement for most efforts by the central government to help the state-managed power industry.For states to receive the funds, they must lay out their plans to turn around their electricity distributors, a regular requirement for most efforts by the central government to help the state-managed power industry.

Two months after India announced a 900 billion rupees ($12 billion) loan program to aid power distributors punished by the pandemic, only a fraction has been utilized as many state applications have yet to meet the lending requirements, according to people familiar with the matter.

The loans, announced by Finance Minister Nirmala Sitharaman, are among a raft of measures aimed at reviving an economy that’s forecast to contract this fiscal year for the first time in more than four decades.

Meanwhile, India’s electricity sector, already burdened by perennial losses and unpaid bills, is now seeking to recover lost cash flow after efforts to tame the coronavirus pandemic caused a sharp drop in power demand.

Power Finance Corp. and REC Ltd., the two state-backed firms lending the funds, have disbursed a combined 112 billion rupees as of Tuesday, said the people, who asked not to be named as the information isn’t public. Most states have shown interest in the program and have applied for loans, the people said, with applications so far totaling 673 billion rupees.

“The loan scheme has progressed slower than expected, mainly because of procedural delays in states and stringent conditions that states are finding difficult to agree with,” said Rupesh Sankhe, an analyst at Elara Capital India Pvt. in Mumbai. “The delays in payments of dues can force power and coal companies to defer capital expenses and payments to their vendors, sucking up liquidity that’s important for economic revival at this time.”

Power Finance Corp. and REC, as well as the power ministry, weren’t immediately able to comment.

Power Plans
For states to receive the funds, they must lay out their plans to turn around their electricity distributors, a regular requirement for most efforts by the central government to help the state-managed power industry.
That includes providing a timeline for the payment of subsidies that states owe power distributors, as well as the unpaid power bills of state government units. They must also offer a plan for how they will reduce electricity theft and losses by the distributors. The delay is partly due to a new requirement that the state governments underwrite the loans.

A total of 342 billion rupees in loans have been preliminarily approved, with 112 billion already disbursed, while the remainder is awaiting further compliance from the states or is being held for a second tranche of payments. The funds already distributed have gone to the states of Telangana, Maharashtra and Andhra Pradesh, they said.

At the end of May, state distribution utilities owed dues of 1.17 trillion rupees to generators, 78% more than a year earlier, according to a Power Finance portal to track payments. The firms also lost a combined 496 billion rupees in the year to March 2019, according to the most-recent data from Power Finance Corp.

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