Liquidity infusion into ailing discoms a temporary arrangement; move may put more pressure on states: Experts

Currently, the outstanding dues of discoms towards power generating and transmission companies is to the extent of Rs 94,000 crore, which is expected to come down through the relief package.

Press Trust of India May 15, 2020 18:53:44 IST
Liquidity infusion into ailing discoms a temporary arrangement; move may put more pressure on states: Experts

Mumbai: Liquidity infusion of Rs 90,000 crore in ailing discoms through PFC and REC by government is a temporary arrangement and might put further pressure on state governments which are fighting the COVID-19 pandemic, experts said.

As part of the Rs 20 lakh crore stimulus package announced by Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman has been spelling out various measures for different sectors to help them amid the cornavirus pandemic.

According to the relief package, the sanction of loans to discoms is linked to reforms in state power sector such as promotion of digital payments from consumers, liquidation of outstanding dues from state governments and plan to reduce operational and financial losses by discoms.

Liquidity infusion into ailing discoms a temporary arrangement move may put more pressure on states Experts

Representational Image. Reuters

Currently, the outstanding dues of discoms towards power generating and transmission companies is to the extent of Rs 94,000 crore, which is expected to come down through the relief package.

"From discoms'' perspective, this liquidity relief scheme through loans would increase their overall interest cost, with impact of 9 paise per unit sold at all India level," ICRA Ratings Group Head Sabyasachi Majumdar said.

"However, the extent of impact would be higher for discoms in states like Andhra Pradesh, Karnataka, Jharkhand, Rajasthan, Telangana, Tamil Nadu and Uttar Pradesh, which account for more than 80 percent of the overdues to power generating companies," Sabyasachi added.

He further said that the ability of the discoms to pass on this interest cost through tariffs remains uncertain, given that this may not come under the normative working capital interest allowed by the regulators while determining retail tariffs.

"This may result in increase in dependence on state government support. As a result, the book loss levels for the discoms are likely to increase by Rs 27,000 crore in FY2021 from FY2020 becuase of the impact of the lockdown," he added.

It may be noted that in 2015, the government had come up with the Ujjawal Discom Assurance Yojna with an intent to find a permanent solution to the financial mess that the power distribution is in, wherein state governments, which own the discoms, could take over 75 percent of their debt as of 30 September 2015, and pay back lenders by selling bonds.

However, the scheme did not really help the discoms as it only resulted in increasing the total debt burden of the states while the discoms continued to default on payments.

According to Care Ratings, the Rs 90,000 crore credit infusion is a step in the right direction, but it will be necessary to see to what extent the discoms are able to avail the scheme given the ''tied'' nature of this support and requirements of state government guarantee.

"With this measure, the power sector problem is being shifted to the state government and therefore the achievement on reform intent will be a challenge as has been proven time and again," its Senior Director Amod Khanorkar said.

Also, with COVID-19 cases rising drastically despite the lockdown to more than 82,700 and death toll crossing the 2,600 mark, the state governments are diverting their funds and mobilising them towards fighting the pandemic, which leaves lesser scope for them to take on additional financial burden, another analyst stated.

A senior official from Maharashtra state utility Mahadiscom noted that the intent of the initiative is good, but it depends on the financial ability of the discoms to meet the criteria as well as to what extent the state government would be able to take the guarantee needs to ascertained and worked out.

"In the current scenario, despite introducing various initiatives for digital payments, tariff collections have not been achieved to the extend we expected.

"Mahadiscom has already taken various initiatives to reduce our AT&C (aggregate technical and commercial)losses. Also, due to the lockdown, our revenues from the subsiding industrial and commercial consumers have gone down significantly," the official said.

Currently, India''s average AT&C losses are estimated at around 21.4 percent, which the government intends to reduce to less than 12 percent.

While Arunachal Pradesh has the highest AT&C loss of over 58 percent, for Jammu and Kashmir it is more than 53 percent and for Uttar Pradesh it is over 38 percent.

Echoing similar views , Crisil Infrastructure Advisory Senior Director Energy Vivek Sharma noted that the larger issue of discoms'' financial sustainability and turnaround remains a matter of concern.

"This is a short-term measure. Also, appropriate structuring for bond issuance against guarantee will be critical to raise funds in the current tight liquidity scenario," he added.

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