Relief package worth ₹90\,000 crore expected to boost credit profile of gencos

Info-tech

Relief package worth ₹90,000 crore expected to boost credit profile of gencos

Our Bureau Hyderabad | Updated on May 25, 2020 Published on May 25, 2020

Discoms’ overdues to all gencos increased to ₹91,700 crore as of March and dues are likely to pile up during lockdown

The ₹90,000-crore relief package announced for distribution companies (Discoms) under the Atmanirbhar Bharat Abhiyan would boost the credit profile of generating companies.

This would materially reduce their working capital requirements and consequently the debt taken to fund receivables, according to India Ratings (Ind-Ra).

This move will benefit all power companies including central public sector enterprise (CPSE) gencos and transmission companies (Transcos), independent power producers (IPPs) and renewable (RE) generators. However, the impact could vary across different generating classes and be dependent on the quantum of funds released, the ability of discoms to borrow under the scheme and the timeline over which it is implemented. Ind-Ra does not expect any rating changes on account of the expected reduction in receivables.

Increasing debt

The Discom overdues to all gencos increased to ₹91,700 crore as of March 2020 from ₹55,300 crore as of March 2019, the overdues to CPSE gencos increased to ₹30,900 crore. The dues are likely to increase further during the lockdown period, given the lower demand and collections seen by Discoms. The high receivables for Gencos have led to a pile-up of debt and subsequent deterioration in their credit profile.

According to the Ministry of Power and Power Finance Corporation Ltd, the amount will be lent to discoms in two tranches — 50 per cent in Tranche I and the rest in Tranche II by REC Limited and Power Finance Corp.

The disbursements of loans to discoms are subject to the implementation of reforms such as liquidation of dues and subsidies by State governments, installation of smart meters and improving operational and financial efficiency. These loans will be secured with unconditional and irrevocable State government guarantees covering the loan amount along with interest and any other charges towards the loans.

The first tranche could be released to gencos directly post approval from respective discoms. However, the ability of discoms to borrow under this scheme could be dependent on the headroom available for further borrowings within the working capital limits prescribed under the Ujjwal DISCOM Assurance Yojana. In case of lower headroom, the borrowing would be limited to the receivables Discoms have from respective States.

Till now, the two-part tariff structure for CPSE gencos has remained unscathed. Given the high capital cost of newer plants, the fixed cost itself has increased over the years. Additionally, the increasing divergence between plant availability factor and plant load factor has resulted in a significant elevated per unit fixed charge for Discoms. Thus, power purchase cost for Discoms under two-part tariffs is significantly higher than that for renewables in case of low plant load factors. The package opens up a window for Discoms to press hard for negotiations on fixed costs.

Published on May 25, 2020

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Sincerely,

Support Quality Journalism
Realme launches new range of AIoT products including Smart TV