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Outstanding dues of private power gencos to hit a four-year low: Crisil

The Centre announced loans for discoms against their receivables, as part of the  ₹20 trillion stimulus.Premium
The Centre announced loans for discoms against their receivables, as part of the 20 trillion stimulus.

  • This assumes significance given that the cash-strapped electricity distribution companies (discoms) are the weakest link in the electricity value chain with poor payment records not only adversely affecting power generation firms but also contributing to the stress in the banking sector.

In a boost to the Indian power sector, the outstanding dues of private generation companies (gencos) are expected to come down to a four-year low of fewer than 100 days and below the pre-pandemic levels, said Crisil Ratings in a statement on Tuesday.

This assumes significance given that the cash-strapped electricity distribution companies (discoms) are the weakest link in the electricity value chain with poor payment records not only adversely affecting power generation firms but also contributing to the stress in the banking sector.

According to a Crisil analysis of India’s 76 gigawatts (GW) of operational independent power producers (IPP) capacities, “Dues of private coal-based independent power producers (IPPs, or gencos) are expected to wind down to a four-year low of fewer than 100 days by end of this fiscal, and well below the pre-pandemic levels."

The Centre announced loans for discoms against their receivables, as part of the 20 trillion stimulus. “The 1.35 trillion Aatmanirbhar stimulus announced in May 2020 to clear off the dues till June 2020, came in as a much-needed support," the statement said.

“Under the stimulus, disbursements cumulating to ~ 1.05 trillion are expected to be provided by the end of this fiscal, of which nearly 40-45% will be to clear dues of thermal IPPs. About 30,000 crore has already been disbursed in the previous fiscal which arrested the rise in receivables to an estimated ~125 days as of March 2021 (compared with ~117 days as of March 2020)," the report added.

States have also been allowed additional borrowing for four years up to 0.5% of gross state domestic product (GSDP) annually, subject to carrying out specified power sector reforms. The headroom for borrowing for the last fiscal was raised to 5% of GSDP from 3%, subject to the states carrying out specific reforms including recommendations made by the 15th Finance Commission.

“The balance disbursement under the Aatmanirbhar stimulus, expected in this fiscal, should help wipe-off most of the older genco bills. On the current bills too, the payment cycle has shortened by 2-3 months as discoms own liquidity picked up in line with economic recovery. Payment security mechanisms through letters of credit are also helping in clearing IPP dues faster," Manish Gupta, senior director, Crisil Ratings Ltd said in the statement.

Prime Minister Narendra Modi in a recent LinkedIn post wrote that states raised an extra 1.06 trillion in the last financial year, by leveraging their enhanced borrowing limits under the Aatmanirbhar Bharat package that called for carrying out reforms. These qualifying measures included introducing reforms in four areas such as universalization of “one nation one ration card", ease of doing business, power distribution and urban local body revenues.

"In the first half of last fiscal, discom liquidity was severely impacted by lower collections because of pandemic-induced lockdowns. Consequently, dues to IPPs ballooned more than 50% by September, from the ~ 48,000 crore seen at the end of last fiscal. This had started affecting the debt servicing ability of gencos," the statement said.

This comes at a time of the reforms-based result-linked power distribution sector scheme that was announced in the Union budget presented earlier this year. While announcing the relief package in the wake of the second wave of coronavirus pandemic, finance minister Nirmala Sitharaman on Monday said that the Centre’ share towards the marquee 3.03 trillion power discom reform scheme will be 97,631 crore. The scheme is aimed to help reduce losses and improve the efficiency of discoms.

“This improvement should free up 7,000-9,000 crore in fiscal 2022, equivalent to one quarter of debt servicing for these IPPs. We expect the money to be used for paring down debt or creating liquidity buffers and/or undertaking necessary capex for adherence to emission norms, lending some support to credit profiles," Ankit Hakhu, director, CrRatings Ltd said in the statement.

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