Home >Industry >Energy >Power ministry floats Cabinet note to relax discoms’ borrowing limit

New Delhi: With some state electricity distribution companies (discoms) unable to avail India’s 1.25 trillion reform-linked loan package for clearing outstanding dues, the union power ministry has moved a cabinet note for increasing their borrowing limits, said two people aware of the development.

With some fund-starved discoms neither having the headroom for borrowing more working capital, nor the requisite state receivables to clear their dues, the power ministry has circulated a draft cabinet note seeking a one-time exemption on working capital limits placed under the Ujwal DISCOM Assurance Yojana (UDAY).

As part of its stimulus package to bring India’s battered economy back on track after the coronavirus lockdowns, the government announced this liquidity injection for discoms as part of the Atmanirbhar Bharat Abhiyan, backed by state governments’ guarantees. The money is to be raised by state-owned Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) from the market against the receivables of discoms.

“The cabinet note has been circulated for inter-ministerial consultations," said a senior government official requesting anonymity.

The 90,000 crore 10-year loan package announced towards clearing outstanding dues for losses up to 31 March, will now cover losses till June, with the package corpus expected to reach 1.25 trillion. The union power ministry is also examining the possibility of a reduction in interest rates for these loans.

Queries emailed to a power ministry spokesperson remained unanswered.

“The COVID-19 pandemic and the resultant lockdown has adversely affected the power sector finances, creating a situation of acute liquidity crisis across the value chain in the power sector as a consequence. In this situation the liquidity infusion in the Power sector value chain will help to tide over the cash flow problem. This money will help discoms to repay most of the money that they owe to power generators( Gencos) and Transmission Companies( Transcos). It will help restart the virtuous cycle of cash flow in the Power sector," the government said in a statement earlier.

The scheme involves loans to be disbursed in two tranches, and linked to certain reforms such as increasing digital payment interfaces; prepaid metering in government departments and making action plans for loss reduction among others.

Loans in the first tranche will require unconditional and irrevocable guarantee from state governments covering the loan amount, plus interest and other charges. Loans in the second tranche will be conditional on loss reduction and performance improvement.

“The DISCOMs that do not have headroom under UDAY working capital limits but have receivables from the State Government in the form of electricity dues and subsidy not disbursed will also be eligible for these loans to the extent of receivables from the State Government," the government said in a statement earlier.

“In addition, the respective states may request for relaxation of the limit to the Government of India for the DISCOMs that do not have receivables from states or headroom available under the working capital limits imposed under UDAY," the statement added.

To support India’s transition period towards the next generation power sector reform’ pathway, the union power ministry has also requested the 15th Finance Commission for a recalibration of borrowing limits for states under the Fiscal Responsibility and Budget Management Act (FRBM).

With at least 10 states losing about a third of the power supplied to their consumers in distribution losses, their overdues have not only hit power producers, but have also contributed to stress in the banking sector.

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