Discoms to get Rs 90K liquidity support to clear dues

Finance minister Nirmala Sitharaman said that the liquidity window for discoms was essential as its revenue has plummeted and they are in the midst of unprecedented cash flow problem accentuated by demand reduction during the current lockdown.

Under the plan unveiled by the Finance Minister, power sector financiers -- PFC and REC will infuse liquidity of Rs 90,000 crore to DISCOMs against receivables. Loans will be extended against State guarantees for exclusive purpose of discharging liabilities of Discoms to Gencos.

Discoms dues towards gencos have risen to Rs 94,000 crore and this was making operations unsustainable as unpaid power producers were looking to stop power supplies to states.

As with earlier power sector reform initiatives, the loans will be given to discoms against specific activities and reforms: digital payments facility by Discoms for consumers, liquidation of outstanding dues of State Governments, Plan to reduce financial and operational losses.

To make the exercise beneficial even to power consumers, it has been decided that Central Public Sector Generation Companies shall give rebate to Discoms on clearance of their dues, which shall be passed on to the final consumers (industries) by way of rebate of power tariff.

The Covid-19 outbreak and subsequent lockdown has squeezed power demand sharply in months of March and April and the fall has been such sharp that demand for full year 2020-21 is set to report 1 per cent decline, first time in almost 36 years.

Not only this, with expectation that the lockdown may continue in large parts of the country for some more time, the discoms are set to return of yesteryears of adding losses after losses every year making their operations unviable. Extension would also impact demand further.

According to an analysis done by rating agency Moody's unit ICRA, expected losses at state-run electricity distribution utilities (DISCOMs) would rise two-thirds to Rs 50,000 crore in FY21 with an addition of Rs 20,000 crore in book level losses in current year itself.

Discoms have already been reeling under low demand conditions for some time and this has impacted their revenue and ability to service payment dues to generators. Accordingly, the debt-laden DISCOMs' overdue payment to electricity generators had risen to Rs 94,000 crore now, more than 50 per cent higher compared with the same period last year.

What has added to problems of discoms is that the lockdown has resulted in consumption decline from the high tariff paying industrial and commercial consumers (tariff almost twice that for households) and the likely delays in cash collections from other consumer segments.