Coronavirus Lockdown: PFC, REC to infuse Rs 90,000 cr liquidity into cash-strapped discoms

New Delhi: Finance Minister Nirmala Sitharaman on Wednesday announced Rs 90,000 crore liquidity infusion into cash-strapped discoms, facing demand slump due to the lockdown to contain COVID-19.

At present discoms have a total outstanding of Rs 94,000 crore towards power generation firms (Gencos).

The finance minister said there would be Rs 90,000 crore liquidity injection for discoms noting that revenues of power distribution companies (DISCOMs) have plummeted and witnessing unprecedented cash flow problem accentuated by demand reduction.

The power demand during the lockdown dipped by more than a third on many times.

The state-owned shadow banking firms Power Finance Corporation or REC would infuse liquidity of Rs 90,000 cr to discoms against receivables.

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The liquidity in the form of loans to discoms would be given against state guarantees for exclusive purpose of discharging liabilities of discoms to Gencos, it added.

This scheme would link to specific activities/reforms by the discoms like digital payments facility for consumers, liquidation of outstanding dues of state governments and plan to reduce financial and operational losses.

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Central public sector generation companies will provide rebate to discoms which will be passed on to the final consumers (industries), a presentation by the finance minister said.

This liquidity infusion was awaited as the discoms financial health deteriorated further with slump in power demand and low bills collections during lockdown, an expert said.

“The Rs 90,000 crore liquidity infusion into discoms will breathe fresh life into the power sector and protect distribution companies from going bankrupt.

“This money will help the discoms to repay most of the Rs 92,000 crore outstanding payments that they owe to power generators, restarting the virtuous cycle of liquidity, higher investments and rapid growth for the power sector,” Sumant Sinha, CMD, ReNew Power said.

A key aspect of Modi government’s mega stimulus package is to use the resources to drive fundamental, and grassroots level change. Earlier, too, attempts have been made to restructure discoms, Pradeep Mittal, Executive Vice Chairman Essar Power Business, said.

“In this instance, the government has made equity infusion contingent on improvement in operational performance. This will force states and discoms to improve infrastructure and collection efficiency. This is not a giveaway package; this is a lever of structural change,” he added.