Big Bang? 90K Crores Credit Line For Discoms in Stimulus Package

After the Prime Minister announced his Rs 20 trillion stimulus package yesterday, in the morning today, we had written about how lack of any strong, concrete measures to solve the discom mess in India would be a very disappointing outcome for the power sector.

The good news is, the sector has been saved disappointment in that area. Faced by an unprecedented cash flow problem accentuated by demand reduction DISCOM payables to Power Generation and Transmission Companies is currently ~ Rs 94,000 cr, according to the ministry.  Now, PFC/REC will infuse liquidity of Rs 90,000 cr to DISCOMs against their receivables. That $11.8 billion out of the roughly $266 billion stimulus announced.

These loans are to be given against State guarantees for the exclusive purpose of discharging liabilities of Discoms to Gencos. The move should help gencos across categories massively, including the renewable energy sector in the foreseeable future.
Further, these funds will also be linked  to specific activities/reforms : Digital payments facility by Discoms for consumers, liquidation of outstanding dues of State Governments, Plan to reduce financial and operational losses.
Central Public Sector Generation Companies shall give rebate to Discoms which shall be passed on to the final consumers (industries). “The government has decided to waive off the fixed charges and interstate transmission charges  (by Powergrid Corporation Limited) against the power not draw from NTPC, DVC, and other CPSE from the period March 24 to May 17, 2020”, tweeted Power Minister R.K. Singh.

This will amount to Rs 0.22 per unit inter- state electricity transmission charges by PowerGrid,, resulting in potential savings of upto Rs 1400 crores. Add this to the discounts gencos are expected to give to get early payments from the discoms, and the Rs 94,000 crores figure is neatly covered, for now.

The decision was welcomed by leaders in the sector.

A welcome move to empower DISCOMS. Essential to keep them healthy in order to meet our country’s RE targets of 175 GW by 2022. @nsitharaman @Anurag_Office @FinMinIndia @RajKSinghIndia
@PMOIndia #AatmaNirbharBharatAbhiyan https://t.co/iZSszJKpWY

— Sumant Sinha (@sumant_sinha) May 13, 2020

Interestingly, the list of announcements today didnot have anything specific for the the renewable energy sector, which was the second answer we have been looking forward for. We will hope that over the next few days, as more details are released, we will get an answer there too.

For now, the Rs 90,000 crores ( $ 11.8 billion approx)  funds infusion will be a life saver for the sector, in terms of additional liquidity it provides to the whole supply eco system for discoms. Sources inform us that these funds are likely to reach suppliers only by June end, as the finance firms tasked with releasing the funding, Power Finance Corporation and Rural Electrification Corporation, get down to the nitty gritties of ensuring conditions are met. As of now, it does appear that critical reforms, especially in terms of subsidy disbursal, smart meter roll out and many others will depend on the passage of the Electricity act (amendment) bill, 2020.

Keep in mind that clarifications that follow announcements have become  send nature for our governance now, and gencos would know that  better than most, as they look forward to welcome relief soon.