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Photo: Mint
Photo: Mint

Gencos hope govt’s liquidity infusion will lead to long-term reforms

  • Gencos are waiting to see the fine print of the policy to decide whether they will avail the liquidity plan or not
  • Power Finance Corp and Rural Electrification Corp will infuse the liquidity by raising an amount of about Rs90,000 crore from the market against the receivables of discoms

MUMBAI : The 90,000-crore liquidity infusion is a much-needed lifeline for state-owned power distribution companies (discoms), but power generators (gencos) said it should be strongly linked to reforms ensuring operational efficiencies.

Gencos are also awaiting the fine print and the interest rates of the liquidity plan, which will decide whether they will avail of it or not.

State-owned Power Finance Corp. (PFC) and Rural Electrification Corp. (REC) will infuse liquidity by raising about 90,000 crore from the market against the receivables of discoms. State governments will provide a guarantee.

The loans will be passed on to discoms at 8-8.25%, attractive enough for the near-bankrupt companies, said a power sector generator, on condition of anonymity. Many discoms have been knocking at the doors of PFC and REC seeking financial support, he said. Discoms’ accumulated dues are about 92,000 crore.

“The liquidity infusion for discoms has been one of our three demands from the ministry of power since March," said Ashok Khurana, director general, Association of Power Producers. “We knew that if this lockdown continues and power demand falls, discoms will be unable to pay gencos. Our other demands were for a moratorium on loans, which the Reserve Bank of India has granted, and deferment in coal payments. I hope the government quickly formulates the scheme details and it gets adopted by state governments," said Khurana.

“The liquidity infusion into discoms will breathe life into the power sector and protect them from becoming bankrupt," said Sumant Sinha, chairman and managing director, ReNew Power. “This money will help discoms to repay most of the money that they owe to power generators, restarting the virtuous cycle of liquidity, higher investments and rapid growth for the power sector. This may also be an opportune time for the government to convince states to expedite distribution sector reforms so that discoms are able to become financially viable entities," said Sinha.

“In the thermal power sector, the first three links in the chain, coal miners, railways and transmission lines, are paid in advance, while gencos have to wait for months for payments. Gencos cannot curtail power production if they don’t get paid, so we have to keep supplying and incurring these costs. Most gencos have done this so far by taking loans. So, this liquidity support for discoms is positive for gencos and will ensure uninterrupted power supply," Khurana said.

“We also need the government to force deep-seated reforms on discoms, such as stopping cross subsidies and curtailing transmission and distribution losses," he added.

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