Bailout Package of Rs 90k Cr to Provide Only Temporary Relief to Discoms, Says Ind-Ra

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The bailout package of Rs 90,000 crore, announced recently by Finance Minister Nirmala Sitharaman, would only provide temporary relief to power distribution companies (Discoms), but not a long-term solution to their woes, said a leading credit rating agency India Ratings and Research (Ind-Ra).

With an aim to infuse liquidity into the cash-strapped Discoms, the government announced relief package saying that they owe Rs 94,000 crore to power generation companies/ transmission companies (Gencos/Transcos).

According to Ind-Ra these “loans will be provided to Discoms against guarantees by state governments and will be used to clear their liabilities towards central public sector enterprise Gencos/Transcos, independent power producers (IPPs) and renewable energy Gencos.”

However, this benefit has not been extended to Discoms for payables towards state Gencos, it added.

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While joining the Ujwal DISCOM Assurance Yojana (UDAY) scheme, which was launched in 2015, most of the states and their Discoms had agreed to achieve a number of milestones relating to aggregate technical and commercial (AT&C) losses, elimination of ACS-ARR gap (the difference between the average cost of supply and average revenue realisation), distribution transformer/feeder metering etc.

However, these milestones have mostly remained unachieved. As a result, despite the transfer of a major portion of debt from the books of Discoms to state governments, the finances of several Discoms have remained in reds and weak, even prior to COVID-19 related lockdown, said the report.

It further added lockdown has only aggravated the Discoms’ stress. Therefore, the credit rating agency opined that the infusion of Rs 90,000 crore will not provide any long-term stability to their finances, so long as the legacy issues relating to operations such as low billing and collection efficiency, high AT&C losses, delayed receipt of subsidy and high receivables are not methodically addressed.

Earlier, Ind-Ra maintained a stable outlook on the overall energy and infrastructure sector, including solar power projects for FY21 while revising the outlook on the wind sector to negative from stable.