PFC, REC merger may leave discoms with higher-than-usual dues on books

The merger of two leading government-owned financers of the power sector will have a negative effect on the borrowings of the beleaguered state-owned power distribution companies, claim power generators.

Gencos said dues from discoms would balloon as they would be unable to borrow from Power Finance Corporation (PFC) and Rural Electrification Corporation (REC).

Senior executives of gencos have said discoms would close the year with higher-than-usual dues on their books. Discoms usually borrows towards the end of a financial year to settle dues.

The total outstanding dues of the discoms are Rs 26,437 crore, according to the power ministry’s portal. Of this, exposure to privately owned units is the highest (Rs 15,000 crore). This is followed by Rs 8,344 crore to NTPC and Rs 1,387 crore to NHPC. There are several other smaller gencos.

The latest data on Ujwal DISCOM Assurance Yojana (UDAY) portal shows several states are back in the red.

During the nine months of the current financial year, loss incurred by Tamil Nadu was the highest at Rs 41,547 crore, followed by Telangana (Rs 32,700 crore), and Uttar Pradesh (Rs 31,711 crore).

These are the same states which have the highest outstanding dues to the gencos. NTPC even issued notices to some of these states on regulating their power supply because of payment delay.

UDAY is the central government scheme for turning around power distribution companies.

When the scheme started in 2016, states took over the outstanding debt of discoms to issue bonds. The plan was to turn around the financials of the loss-making discoms by improving their operations.

The UDAY guidelines state the banks and financial institutions are not supposed to do loss funding. Also, they can give working-capital loan up to 25 per cent of the revenue of the discoms.

“The states are unable to pay, as they can’t borrow from PFC and REC due to the on-going merger. Given their poor financial state, discoms can’t raise money from the market. This worsens the payment status,” said a senior executive of a state-owned power-generating company.

As PFC and REC finalise the contours of the merger, all rating agencies have put them under “credit-rating watch”. This has affected their borrowing and thereby the lending to states, said senior executives. PFC executives deny these apprehensions. 

“We are disbursing regularly and our sanctions to the discoms are governed under the UDAY guidelines. So the loan disbursement follows a restricted guideline already,” said a senior executive. Calls to the chairman and managing director of PFC did not elicit a response. 

His counterpart at REC was transferred last week.

The two financers could face financial troubles as REC would lose many lines of credit after the merger, and PFC would make significant expenditure for this deal.