A fresh loan of Rs 90,000 crore is being extended by sector-specific lenders PFC-REC to the state-run power distribution companies, but with definite riders meant to ensure that the facility indeed comes to the aid of these tottering entities. According to sources, the fresh funding would be done in two tranches of Rs 45,000 crore each, both special long-term institution loans of tenures up to 10 years.
The release of the first component of the loan to each state discom will be contingent on the respective state government undertaking to clear the departmental dues to its discom in three years, and putting in place a credible mechanism to release the subsidies – meant for the consumers but routed through the discoms – in advance.
To receive the second tranche of the package, the discoms will have to furnish evidence of actions taken to implement the initial undertakings, which will include enabling digital payment of electricity bills. At the stage of release of the second tranche of Rs 45,000 crore, the discoms will also have to come up with a plan, endorsed by the respective state governments, to reduce their losses.
Government departments owe dues of over Rs 50,000 crore to discoms in the country and this is seen to be an impediment to the efforts to restore the financial health of the state-run power distribution companies. Unpaid bills to civic bodies and other such institutions by the discoms increased from Rs 36,900 crore in FY18 to Rs 41,743 crore in September 2019 to the current level, constituting about 55% of the total dues that discoms owe to power generators. On top of this, the states do not clear subsidies offered to certain consumer categories (including households and farmers) in time, adding to liquidity problems faced by the discoms. The annual subsidy bills footed by state governments run into over Rs 1 lakh crore. Subsidy compensations are anyway inadequate as electricity usage of unmetered and agricultural consumers are higher than the estimates on which the subsidies are calculated.
The idea of conditional fresh loans to discoms is in line with the scheme which the power ministry was already working on to instill the sense of fiscal prudence in discoms. In an interview with FE in early March, Union power minister RK Singh had said that the plan included depriving discoms, failing to traverse a glide path for loss reduction to be agreed upon among the Centre and states, of their principal source of loan finance, namely PFC-REC.
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 stood at Rs 79,829 crore at March-end.
The current crisis is seen to increase the financial losses of discoms to Rs 50,000 crore in FY21 (from estimated Rs 30,000 crore in FY20), according to Icra rating agency. Analysts noted that the losses can be higher as, under the current circumstances, state power regulators could hike tariffs inadequately resulting in wider difference between the cost of supply and revenue realised (ACS-ARR gap).