Andhra to raise Rs 10,000 cr in loans to meet discoms' payment obligations

APPFCL acts as a nodal agency for raising the funds for the state power utilities either by issuing bonds or by taking loans from banks and financial institutions

The Andhra Pradesh government has mandated the AP Power Finance Corporation (APPFCL) to raise as much as Rs 10,000 crore at interest rates of not over 8.5 per cent. The amount will be utilised to fund discoms towards meeting their payment obligations.

APPFCL acts as the nodal agency for raising funds for state power utilities either by issuing bonds or by taking loans from banks and financial institutions. “The government has decided to extend guarantees for loans of up to Rs 10,000 crore-Rs 11,000 crore being raised by the corporation this year as the discoms need that much money for payments towards power purchases, among other things. We have already approached all the banks seeking loans at under 8.5 per cent interest,” an APPFCL official told Business Standard.

 
The corporation has decided to mobilise the funds only in the form of loans this time around as it was facing an unfavorable situation in the bond market.  Here, potential investors asked for a return of 11 per cent on power bonds, according to the official.

In 2018, the previous government headed by N Chandrababu Naidu raised Rs 2,000 crore for the Amaravati capital city project by issuing 10-year bonds at a fixed interest rate of 10.32 per cent. It attracted criticism from the then opposition parties regarding the cost.         
 
But the loans did not seem an easy option for the Y S Jagan Mohan Reddy government when, acting on APPFCL’s Rs 3,000-crore loan application, the State Bank of India (SBI)’s Mumbai office raised questions about the government’s repayment capability.

               
This is in light of the state finances being burdened by excess leverage and pending power dues. However, things started moving after the SBI agreed to sanction the loan.
 
“Citing certain sanctioning limitations, the SBI had agreed to give Rs 1,500 crore to the corporation against our request for a Rs 3,000 crore loan, at 8.5 per cent interest rate. With the government putting 8.5 per cent rate of interest as a ceiling to avail loans, we have written to all the banks seeking loans on a similar condition,” said the APPFCL official.
 
The accumulated power dues amounting to Rs 20,000 crore, which include around Rs 3,000 crore to renewable energy producers, remained unpaid.

 
This is because the state government’s efforts – either at raising funds outside the budget or from the Centre by way of financial support towards the high cost renewable energy – met with a little success so far.
 
Last month, state power minister Balineni Srinivasa Reddy wrote a second letter to Union power minister R K Singh. Reddy reiterated his government’s demand that the Centre take responsibility for the renewable energy integration costs claimed to be in the range of Rs 5,000 crore annually.
 
The financial situation of the AP power sector is expected to deteriorate further owing to a widening revenue gap as projected by the state discoms in their recent annual revenue requirement(ARR) filings for the year 2020-21.

 
The revenue gap is projected to increase by 45 per cent to Rs 12,439 crore in 2020-21 from Rs 8,900 crore in the current year even after an additional revenue of Rs 1,373 crore.
 
This is proposed to be raised by imposing tariff hike on government-related services and via the local bodies.
 
In the current year, the state government has made a budget provision of Rs 6,500 crore towards power subsidy while still leaving a gap of around Rs 3,000 crore.
 
The discoms have earmarked Rs 12,439 crore for power purchases in the next financial year, an increase of 9.1 per cent over the approved power purchase costs of Rs 11,402 crore this year.