PFC eyes new infra, net zero value chain: Chairman & MD R S Dhillon

'PFC and REC have sanctioned close to Rs 2 trillion covering 36 discoms', said Dhillon

Power Finance Corporation (PFC) is witnessing a significant shift in its loan portfolio as the country's energy market shifts to newer avenues such as green energy, green fuels, and decarbonisation. In sync with the central government's policy changes, PFC is eyeing a large share of its business from up-and-coming sectors, as conventional ones take a back seat.

R S Dhillon, chairman and managing director of PFC, spoke with Shreya Jai to discuss the way forward. Edited excerpts:

How has the loan portfolio of PFC shifted over the years, given the slowing pace in thermal and new growth areas emerging in the energy sector?

PFC's loan portfolio has always mirrored the changing needs of our country's power sector. During 2007-2017, India's installed power generation capacity increased 2.5 times to 327 GW. PFC was significantly funding this capacity addition program. In line with the sector's requirement, generation assets comprised as much as 85 per cent of our loan portfolio by FY2012.

The Centre has now shifted its focus on addressing one of the weakest links in the power sector value chain, the power distribution companies (discoms). PFC has been the nodal agency for most discoms' reform schemes of the Centre, such as R-APDRP and IPDS. Further, in 2020, to avert a Covid-induced liquidity crisis in the power sector, the government of India launched the Liquidity Infusion Scheme (LIS) for discoms under the Atmanirbhar Bharat initiative. Under LIS, PFC & REC have disbursed over Rs. 1 trillion to discoms. As a result of these reforms, PFC's distribution sector exposure increased to about 29 per cent from 5 per cent during the early 2010s. 

What impact do central government schemes like LIS and Late Payment Surcharge (LPS) have on the PFC's loan exposure to the financially sick distribution sector?

A substantial portion of distribution sector exposure is on account of LIS & LPS, and such exposure is 100 per cent backed by state government guarantees. The common thread among the recent power sector schemes like LIS, RDSS & LPS is that the financial assistance under these schemes is linked to discoms adhering to reform-related conditions. This will address the root cause of financial indiscipline in the sector. It will improve the viability of the sector and will be beneficial for all stakeholders, including PFC.

Under LPS rules, the legacy dues of discoms towards gencos have been converted into EMIs and will be cleared over 12 to 48 months. LPS also has provisions to prevent the fresh accumulation of dues going forward. Non-payment of EMIs or current over dues within a stipulated time by discoms will call for regulation of power by the grid operator.

What has been the lending progress under the newly launched Revamped Distribution Sector Scheme (RDSS)?

PFC and REC have sanctioned nearly Rs 2 trillion covering 36 discoms and will sanction four more in a couple of days. Sanctions to balance a few discoms are being expedited. RDSS has a specific plan tailor-made to each state and specific targets concerning reform conditions. Further, this scheme envisages pre-paid smart metering apart from capital works for loss reduction, which is likely to significantly improve the billing and collection efficiency, improving the overall financial condition of discoms. The scheme aims to bring down AT&C losses to 12-15 per cent and the gap between ARR and ACS to zero. 

What is the status of the NPAs of PFC? How many are resolved and through what mode, and how many are in the process?

Presently the net NPA ratio stands at 1.73 per cent, the lowest in the past six years. Recently, we resolved a 600 MW Jhabua Power project, taken over by a consortium led by NTPC. Another large transmission project is on the verge of completing the resolution process. These resolutions will further bring down our NPA levels. We have adopted various modes for resolving the assets, both under and outside IBC. The primary consideration has been value maximisation for the lenders. Some of the projects underwent multiple bidding rounds, leading to some delays. But we have ensured that the assets have been transferred at a fair price. Most of our large stressed assets have been resolved now, with a few remaining ones under advanced stages of resolution.

Is the company facing any government NPA?

We don’t have any NPAs in the government sector though there have been some delays in repayments by some utilities. A large part of our exposure is to discoms but 72 per cent of it is backed by state government guarantees. We feel that our asset quality is likely to be better than last 5-6 years. Further, as our portfolio moves towards funding energy transition and renewables having lesser gestation unlike large hydro & thermal projects and also being smaller ticket size projects, risk profile of our loan assets will improve overall. 

Status of the proposed Power Asset Management Company (PAMC) for stressed assets resolution?

Our Board has approved the proposal for creating PAMC and our subsidiary REC. Initial paid-up capital of Rs100 crore will be contributed equally by PFC & REC, which may be scaled up later as per the requirement. Necessary approvals from the Ministry of Power, DIPAM, Niti Aayog etc. are being obtained. Meanwhile, PFC & REC are resolving the stressed assets through lenders-backed resolution plans.

In recent years, the PFC has tried to expand in renewables and power transmission. How has that fared for the company?

PFC has to date supported renewable energy capacity addition of 18 GW. During the last fiscal, 44 per cent of our disbursement to the generation sector was to non-fossil fuel projects. Our renewable assets have registered at a CAGR of 32 per cent in the last five years, compared to a 9 per cent growth in total loan assets. India's green energy transition has also opened new funding avenues for us like e-mobility, charging infrastructure, RE equipment manufacturing, utility-scale energy storage etc. During the last year, we have funded the deployment of 350 electric buses in various Districts of Uttar Pradesh under the Fame II scheme.

What share of the company's loan portfolio will be green energy and energy transition as India sets its eyes on Net Zero?

Renewables continue to gain a share in our loan portfolio, and our stated objective is to play a significant role in India's energy transition & net-zero ambition. According to various estimates, the fund requirement to meet India's net zero targets by 2070 is about US$ 10 trillion, a large part of which is to be deployed in the power sector. PFC, the leading financial player in the energy sector, will play a key role in channelising this investment. 

Over the past few years, we have been trying to diversify our lending portfolio. We have exposure to irrigation projects, sewage treatment plants, EV fleets etc. We have recently sanctioned loans for nuclear power projects and electro-mechanical components in refinery projects & metro rail projects etc. Recently, the Centre permitted us to fund logistics and other infrastructure projects. Our diversification is expected to gather steam in the coming years.