The Cabinet Committee on Economic Affairs (CCEA) on Wednesday relaxed the lending limits of the state-owned power distribution companies (discoms), in order to assist them to clear their dues to power generation and transmission companies.
Discoms can borrow only up to 25 per cent of their last year’s working capital, under the limits stipulated in the UDAY scheme for turnaround of the discoms. Any lending was tied with the performance of the discom. This was done to discipline the discoms’ finances.
The CCEA has now relaxed this limit for one-time lending. This would help discoms that have exhausted their borrowing limits.
“The liquidity of the power sector is not expected to improve in the short term, as economic activity and power demand will take some time to pick up. There is, thus, an immediate need to infuse liquidity in the power sector for continuation of power supply,” said a government statement.
The loan is part of the Aatmnirbhar package announced by the finance ministry in May to infuse liquidity in the financially ailing power distribution sector. The scheme aimed at providing a one-time loan by Power Finance Corporation and Rural Electrification Corporation to discoms for clearing their dues to generating and transmission companies. As of June 2020, the total dues of the discoms to gencos stood at Rs 1.13 trillion.
The size of the loan scheme proposed was Rs 90,000 crore and close to Rs 68,000 crore has been sanctioned, said senior officials. However, some states who asked for the loan were breaching the UDAY limit of 25 per cent of working capital. Government sources said discoms of Tamil Nadu and Bihar would benefit from the relaxation which had sought loans of Rs 15,000 crore and Rs 3,524 crore, respectively, above their UDAY limit.
To avail the loan, the state government would need to clear the dues of government departments to the discoms and also give state guarantee to the lenders. The discoms would also need to indicate a trajectory of loss reduction – both financial and operational.
The national aggregate technical and commercial loss (AT&C) or (power supply loss due to inefficient system) of discoms was at 20.8 per cent and its financial loss was Rs 18,316 crore as on December 2019. Under the discoms reforms scheme UDAY, the national average AT&C loss was supposed to come down to 15 per cent by March 2019.