NEW DELHI: The Centre on Wednesday rolled out a highly-awaited relief measure for cash-strapped, debt-ridden power distribution companies (Discoms). The move, part of the Rs 20 lakh crore Atma Nirbhar Bharat Abhiyan relief package, will see discoms get a liquidity infusion of Rs 90,000 crore -- enough to help them pay off over 95 per cent of their current dues to power generation companies (Gencos).
Experts say the liquidity infusion comes as a much needed breather to discoms, who cumulatively owe around Rs 94,000 crore to gencos currently. However, some also warn that since these loans are being issued against state guarantees, the move may raise concerns over respective states' ability to deal with increased debt levels.
According to Union Finance Minister Nirmala Sitharaman, the entire liquidity infusion will be managed through the two state-run power infrastructure finance giants: Power Finance Corporation (PFC) and REC Ltd.
"(These) loans are to be given against State guarantees for the exclusive purpose of discharging liabilities of Discoms to Gencos," the finance minister's presentation to the media said.
PFC and REC will extend the liquidity to discoms against receivables and the scheme will be linked to certain performance objectives set for discoms. These include enabling digital payments facilities for consumers, liquidation of outstanding dues owed to state governments and a plan to reduce financial and operational losses.
"Central Public Sector Generation Companies shall also give a rebate to Discoms, which shall be passed on to the final consumers (industries)," the finance ministry said.
Sandeep Upadhyay, MD – Infrastructure Advisory, Centrum Capital, says the move will "certainly help financially de-stress (discoms) and, in turn, improve liquidity for power generation companies".
Others note that this may just shift the debt burden to state government balances or the lenders'. "This also raises the question of various states' ability to support this additional debt," notes Vipula Sharma, Director, Ratings, Brickwork Ratings, "Unless the financials of the states are strengthened, the problems will continue to be there, just postponed and transferred from the generating companies to the financial institutions".
However, Sharma adds that this package will "cure the immediate cash crunch" faced by discoms, and subsequently, gencos.
The move comes at a time when discom dues have soared, first due to the economic slowdown of the past year and then the demand destruction caused by the Covid-19 pandemic. Currently, India's discoms owe gencos around Rs 94,000 crore. The figure had stood at Rs 92,602 crore as of the end of February 2020, a 31 per cent increase from the previous year.
The situation has only worsened since the lockdown, when most industrial demand ground to a halt. Peak power demand met as of April 26 stood at just 123.65 GW, compared to an average of around 176.8 GW during the same month last year. Commercial and industrial operations account for over 52 per cent of total power demand in India, with households and farm operations contributing just 24 and 18 per cent respectively.
Late last month, ratings agency ICRA had warned that discoms face losses of Rs 20,000 crore this fiscal year, with power demand expected to contract by a whole percentage point (1%). The Confederation of Indian Industry (CII) expects these losses to come out closer to Rs 30,000 crore.
Plant load factors (PLF), a measure of capacity utilisation, are also expected to fall from 56 per cent last year to 54 per cent in FY21. Pre-pandemic forecasts had seen PLF rising to 60 per cent.
"This will aggravate the payment delays from discoms to power generation companies, which are already reeling under large payment dues...," Girishkumar Kadam, Sector Head & Vice-President, ICRA Ratings had warned in the earlier note.
The Centre's decision to help discoms clear their dues to power producers will unclog the working capital pipelines and help reduce the sector's overall debt.