Cabinet relaxes working capital norm for discoms to get loan under Rs 90,000 crore liquidity plan

Under the UDAY, the banks and financial institutions are restricted to lend working capital up to 25 per cent of a discom's revenue in the previous year.
For representational purposes (File photo | Reuters)
For representational purposes (File photo | Reuters)

NEW DELHI:  The Union Cabinet on Wednesday chose to grant significant relief to stressed power distribution companies (discom), extending a one-time relaxation in thresholds which govern whether discoms can get working capital loans under the Ujjwal Discom Assurance Yojana (UDAY) scheme.

The move is a crucial one, since the Centre’s Rs 90,000 crore liquidity relief programme for discoms is to be disbursed under UDAY by state-run power sector financiers: REC Ltd. and PFC Ltd. Under UDAY guidelines, discoms can get working capital loans of only up to 25 per cent of the previous year’s revenues.

The pandemic has, however, sent power demand and bill collections tumbling, and officials say many discoms need to be able to access higher amounts of credit. “The Power sector has a problem,” said Union Minister Prakash Javadekar at a post-meeting press briefing, “There is a slump in power consumption. The bills are not being collected by them.

PFC and REC have been allowed to give loans above the limit...(of) more than 25 per cent working capital limit. This will increase liquidity of the state discoms”. The pandemic had destroyed a large portion of power demand during the peak lockdown period, with high-paying industrial customers closing shop.

The result is that discom revenues have plunged since April, when almost a quarter of power demand was lost. However, things have improved steadily since the unlocking exercise was begun in the latter half of May, with power production going from a 14.3 per cent fall in May, to a 9.9 per cent decline in June and a 1.8 per cent decline in July.

“Revenues of the power distribution companies have nosedived as people are unable to pay for the electricity consumed while power supplies., being an essential service, have been maintained. Energy consumption has decreased substantially. The liquidity of the power sector is not expected to improve in the short term, as economic activity and power demand will take some time to pick up,” the government said in an official statement.

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