The industry has welcomed the stimulus package announced for power distribution companies. This is part of the Rs.20 trillion special economic package announced by the Prime Minister on May 12, 2020. This package, aimed at alleviating the economic stress caused by the COVID-19 crisis, is a combination of monetary and fiscal measures.
The stimulus package will be announced in tranches. Under the first tranche recently announced, there will be a Rs.90,000-crore respite for power distribution companies. This apart, the package will also provide liquidity support to MSMEs, NBFCs, salaried workforce, etc.
For discoms, the package envisages a one-time liquidity injection of Rs.90,000 crore. PFC and REC will infuse this liquidity against the receivables of discoms. These loans carry state government guarantee.
According to a note by agency CARE Ratings, the amount (of Rs.90,000 crore) may be small in relation to their overall outstandings. However, discoms can use these funds to pay generators and transmission companies. The Rs 90,000 crore will be paid back by discoms from reserves or market borrowings.
Apex industry body Indian Electrical and Electronics Manufacturers’ Association (IEEMA) has welcomed the economic stimulus package. “The much awaited announcement of the economic package of the Central Government is well thought through and addresses the concerns of the industry,” noted R.K. Chugh, President, IEEMA.
Salient features of discoms package
-
PFC/REC shall infuse liquidity of Rs. 90,000 crore in discoms against their receivables.
-
Loans to be given against state government guarantee for exclusive purpose of discharging liabilities of discom to gencos.
-
The above funding shall be linked to specific activities/reforms viz. liquidation of dues of state government to discoms, reduction in operational and financial losses, digital payment facility being offered by discoms.
-
Central public sector generation companies (e.g. NTPC, NHPC, etc) shall give rebate to discoms, which shall be passed on to the end consumers.
Vipul Ray, Vice President, IEEMA, observed “The 90,000 crore financial injection for discoms will improve the health of state utilities and distribution companies. However, overdue outstanding of equipment suppliers of state discoms, which stands at around 15,000 crore today, have been overlooked.”
Three key points were addressed by the Finance Minister which are steps in the right direction and they should show the way ahead to state governments, averred Rohit Pathak, Vice President, IEEMA. The three measures, in Pathak’s view, are: public procurement up to Rs.200 crore to be made by domestic suppliers only; directives to CPSUs to clear receivables of MSMEs in 45 days; and a large amount of bank guarantee that can unleash liquidity in the system.
Highlighting the positivity of the relief package to discoms, Sumant Sinha, CMD, ReNew Power said, ““The 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.”
Pointing out to benefits being offered to the critical MSME sector, Maxson Lewis, Managing Director, Magenta Power, said, “The Finance Minister’s announcement focusing towards MSME is the right approach. Making capital available to the MSME sector, which is the biggest employer, is welcome. The EPF contribution will make sure money will go to people who are working for it. Cash infusion is required at the bottom of the pyramid.”
Commenting on the situation, Prabhajit Sarkar, MD & CEO, Power Exchange India Ltd, said, “The Hon’ble Finance Minister’s announcement of infusing Rs.90,000 crore into the discoms of the country is a significant given the perilous situation that entire power sector value chain had entered into due to the COVID 19 pandemic. While a large portion of the Discom payables to generating and transmission companies had piled up over a period prior to COVID 19, yet the pandemic situation had rapidly heightened the cash flow crisis starting from the consumer right up to the generating companies and affecting all entities in between.”
“It has been proposed that this financial incentive would be linked to specific activities/reforms like digital payments facility by discoms for consumers, liquidation of outstanding dues of state governments as well as discoms’ plan to reduce financial and operational losses. Further, the Rs.90,000-crore loan is to be specifically used for discharging liabilities towards gencos and gencos in turn passing the benefit of rebates to Discoms such that they can be further provided to consumers. This is also a welcome proposition,” Sarkar added.
Reacting positively to the liquidity infusion in discoms, Sabyasachi Majumdar, Group Head &Senior Vice President – Corporate ratings, ICRA Ltd, noted, “The liquidity infusion of Rs. 900 billion is a significant positive for the IPPs impacted by the long delays in receiving payments from discoms, with outstanding dues to power generation and transmission companies standing at around Rs. 940 billion. This is especially positive for renewable IPPs in the states of Andhra Pradesh, Rajasthan, Telangana and Tamil Nadu, which are reeling under pending dues of 8-12 months from these state discoms. This would enable the IPPs to lower their working capital interest burden in the near term and improve their liquidity and debt coverage position.”
(Featured photograph courtesy: Sterlite Power)
