New Delhi: Discoms in financial difficulty will be offered loans at cheaper rates of 8.5-9% for a period of 10 years by state-owned power sector finance companies PFC and REC to settle their debts to the companies power generation, said Minister of Energy and Renewable Energy RK Singh. Thursday.Also Read – Want to Save 30% Tax on Cryptocurrency Income? Know-how here
The loans will be offered to discoms as part of the Rs 90,000 crore cash injection scheme announced by Finance Minister Nirmala Sitharaman on Wednesday to help these entities settle their debts to power generation companies and reinvigorate the sector hard hit by the Covid-19 epidemic and the subsequent lockdown. Also Read – Industry Delighted As FM Calls Startups “Engines Of Growth”
Singh said the cash injection plan would greatly help discoms as it would provide them with credit at cheaper rates for a period of 10 years with a two-year moratorium on payments. Discoms would save between 3-9% on interest payments under this liquidity window, as the late payment surcharge on late payments to gencos is normally 12-18%. Also Read – Budget 2022: Industry Experts Hail Crypto Tax, CBDC
“PFC and REC lend to the distribution and production sector with a spread of 2.5 to 3%. Under the current program, they have agreed to reduce the spread by 1.5%, which will reduce the interest rate,” he said.
Singh added that as part of the plan to reinvigorate the industry, discoms have also been allowed to defer fixed charge payments to gencos for not using electricity contracted under PPAs. electricity) during the lockdown period. This payment, which normally represents a charge of Rs 1.25 to 1.50 per unit, can be paid after the lockdown in three installments by discoms. The gencos will not charge any interest or financial charges on this late payment.
Announcing the liquidity window for discoms, Sitharaman had said on Wednesday that it was essential as discom revenues have plummeted and they are in the midst of an unprecedented cash flow problem accentuated by reduced demand during the current lockdown.
Under the plan unveiled by the FM, power sector financiers PFC and REC will inject cash of Rs 90,000 crore into discoms against receivables. The loans will be granted against state guarantees for the exclusive purpose of settling the debts of the discoms towards the gencos.
Discom’s dues to the gencos reached Rs 94,000 crore, making the operations unsustainable as unpaid power producers sought to shut down the power supply to the states.
As with previous power sector reform initiatives, loans will be made available to discoms against specific activities and reforms: digital payment facility by discoms for consumers, liquidation of unpaid state government dues and plans reduction of financial and operational losses.
In order for the exercise to benefit even electricity consumers, it was decided that the central production companies of the public sector would grant a rebate to the discoms during the clearance of their contribution, which would be passed on to the end consumers (industries) by means of a rebate on the electricity tariff. .
The Covid-19 outbreak and subsequent lockdown severely compressed electricity demand during March and April and the drop was so steep that demand for the whole of 2020-21 is expected to register a 1% decline, the first time in 36 years.
Not only that, with the hope that the lockdown can continue in large parts of the country for some time to come, discoms are set to return to yesteryear adding loss after loss every year, rendering their operations unsustainable. The extension would also have an additional impact on demand.
According to an analysis by ratings agency Moody’s unit ICRA, expected losses from power distribution utilities (discoms) would rise by two-thirds to Rs 50,000 crore in FY21 with an addition of Rs 20,000 crore in losses at accounting level for the current year itself. .
Discoms have already been reeling from low demand conditions for some time, which has impacted their revenues and their ability to meet producer dues. As a result, late payments from debt-laden discoms to power producers had risen to Rs 94,000 crore now, more than 50% higher than the same period last year.
What has added to the discom issues is that the lockdown has resulted in lower consumption by industrial and commercial consumers paying high tariffs (almost double the tariff for households) and likely delays in cash collections. other consumer segments.