PremiumNew Delhi: The Centre is considering offering state governments concessional loans from public sector lenders Power Finance Corp. (PFC), Rural Electrification Corp. Ltd (REC) and Indian Renewable Energy Development Agency (IREDA) to help power distribution companies clear green energy dues.
These three companies are the largest lenders to the power sector, and the move is expected to resolve a growing crisis in the clean energy sector even as India chases ambitious targets in renewable energy.
With record low solar and wind power tariffs, banks are wary of lending to renewable energy developers as they suspect the viability of such projects.
The loans are expected to be made available at cost plus nominal fee to help clear the backlog that has resulted in electricity distribution companies (discoms) owing ₹67,237 crore at the end of August for power bought from generation companies (gencos). In return, the respective borrowing state governments will have to either offer a sovereign guarantee or escrow one or more of its revenue streams to the lender.
In poor financial health, discoms have delayed payments to gencos even as the Centre steps up efforts to supply round-the-clock power to all. The inability of discoms to make payments has also added to the pain in the Indian banking sector as clean energy developers are facing difficulties to service their debt. The backlog of dues owed by discoms to gencos ranges from two to 15 months.
A spokesperson for the ministry of new and renewable energy confirmed the development, saying, “This is one of the options being considered."
The mounting outstanding dues to the generators had the potential to dent India’s image as a clean energy champion and comes when new solar tenders of around 15,000 megawatts are in the pipeline.
According to government documents reviewed by Mint, “the state government would use loan amount strictly for making payments to RE (renewable energy) generators on Fifo (first in, first out) basis. For receiving loans, the state governments would undertake to make payments in future to the RE generators on time".
The payment security measure is being sought keeping in mind the issue of non-performing assets (NPAs) in the Indian financial system. According to finance minister Nirmala Sitharaman, NPAs of India’s public sector banks came down to ₹7.9 trillion at the end of March. In comparison, gross NPAs were ₹8.65 trillion at the end of December 2018 and ₹8.69 trillion at the end of September 2018.
“This recourse has been provided to the states provided they offer a sovereign guarantee or escrow one or more of their revenue streams. This will help guarantee repayment of loans and also help sustain the clean energy sector," a senior government official said on condition of anonymity.
India is running the world’s most ambitious renewable energy programme, with a target of 175GW of renewable energy capacity by 2022. Worried by the growing crisis that may add to the stress of NPAs in the banking sector, the NDA government in its second term made it mandatory for state discoms to offer letters of credit as part of the payment security mechanisms in power purchase agreements. This became effective starting 1 August and was done to ensure timely payments by states to electricity generation utilities.
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