After slow start, states lap up liquidity scheme for discoms

After a slow start, the Centre's ambitious Rs 90,000-crore plan on Liquidity Injection for Electricity Distribution Companies has taken off now with close to 80 per cent of the amount already sanctioned to distressed firms in three to four states.

Sources in the Power Ministry said that discoms in Uttar Pradesh have taken sanction for funds totalling about Rs 20,000 crore available under the scheme, while southern states of Andhra Pradesh, Telangana, and Karnataka have got sanctions for about Rs 25,000 crore.

Discoms in Maharashtra, J&K, Rajasthan, Punjab have got sanctioned another Rs 20,000 crore while Bihar and Tamil Nadu are yet to present their proposals for the loan.

Under the scheme, PFC and REC have been identified for liquidity injection into discoms through loans on easy terms, to enable them to clear dues to power generators. This is expected to kick off the payment cycle and keep the power sector functional amid the difficult Covid-19 pandemic period.

As per the Aatmanirbhar Bharat package announced by Union Finance Minister Nirmala Sitharaman on May 13, Power Finance Corporation (PFC) and REC Rural were to infuse liquidity of Rs 90,000 crore into the discoms in two equal instalments.

The amount of soft loan a discom could get was dependent on the amount it owed power generation and transmission companies and its receivables from the state government.

The scheme did not have a smooth start as states were earlier reluctant to extend guarantees on loans given to discoms due to their own precarious financial condition. Very few proposals had come from distribution companies to get loans against receivables (from state governments) for paying back dues of generators in the early days.

Discoms dues towards gencos, which had risen to Rs 94,000 crore as of March-end, has crossed Rs 1.25 lakh crore mark as of June-end. The government is now looking to expand the scheme to cover liquidity for dues up to June.

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

Not only this, with the expectation that lockdown may continue in large parts of the country for some more time, the discoms are set to see mounting losses every year that would make their operations unviable. Extension of the lockdown would also impact the electricity 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 by two third to Rs 50,000 crore in FY21 with an addition of Rs 20,000 crore in-book level losers in the current year itself.

Discoms are already reeling under low demand for some time, impacting their revenue and ability to service payment dues to generators.

Accordingly, the debt-laden discoms' overdue payments to electricity generators have risen to Rs 94,000 crore at present, more than 50% higher compared with the same period last year.

What has added to the woes 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.