Finance Minister Nirmala Sitharaman on Wednesday announced a special liquidity infusion scheme for the ailing power distribution sector, through which it is looking to infuse around Rs 90,000 crore in the distribution companies (discoms).
The loan scheme, however, will come with several riders, said senior officials. “Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) will infuse liquidity in the discoms to the extent of Rs 90,000 crore in two equal instalments. This amount will be used by discoms to pay their dues to transmission and generation firms,” the FM said.
PFC and REC are power sector non-banking financial companies (NBFCs). The national aggregate technical and commercial loss (AT&C) or (power supply loss due to inefficient system) of discoms was 20.8 per cent at Rs 18,316 crore as of December 2019. This has impacted discoms’ ability to pay power generating companies (gencos) and transmission companies (transcos). Discom dues to gencos touched a record Rs 92,000 crore in February.
Senior government officials said the scheme is voluntary, unlike previous reform measures for discoms. “It is a special loan, not any dole. Discoms, who have state guarantee against the borrowing and meet the criteria will be extended the loan,” said an official. He said the contours of the scheme are still under process.
The last discom reform scheme UDAY, launched in 2017, concluded in the previous fiscal. It aimed at financial and operational restructuring of discoms. After clearing debt from their balance-sheet by issuing bonds, most discoms are incurring financial losses again. This is mostly owing to the skewed cost-price ratio and inefficient subsidy system. Additionally, not many have shown improvement in reducing their operational losses.
A senior executive at one of the lending agencies said the loan amount to a discom would be the amount owed to it by the respective state government.
“Loan to a discom would be against the subsidy amount that the state pays it and the unpaid dues of several state government departments to the discoms,” said the executive. Any subsidy in the electricity bill given by discoms is paid by the state at the end of the financial year. Several discoms also face pending dues from government departments. These add to discoms’ financial burden.
“The scheme is for clearing dues of only private and central government owned power generating units. Also, unless the state government of the respective discom gives sovereign guarantee and allocates fund from their Budget, the discom will not get any grant from PFC and REC,” said an official. Vivek Sharma, senior director of energy, CRISIL Infrastructure Advisory, said, “The Rs 90,000 crore stimulus to clear outstanding dues is positive as it will ease liquidity pressure. But this is certainly a short-term measure. The larger issue of discoms’ financial sustainability and turnaround remains a matter a concern”.
Further, to ease the cost pressure on discoms during the lockdown, the finance minister also announced that central government owned gencos will give discoms a rebate. “This will be on the condition that the same is passed on to the final consumers as relief towards their fixed charges,” Sitharaman said.
Details of the quantum of rebate were not shared by the government. Power minister R K Singh tweeted that the rebate would be for the period of March 24 to May 17.