UP asks for Rs 20,940 cr loan to help discoms, more states in queue

Loan requirements under Atmanirbhar scheme to help state-owned discoms crosses Rs 98,000 cr

The Uttar Pradesh government has requested the Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC) for Rs 20,940-crore loan to help its power distribution companies (discoms), seeking a sizeable chunk of the Centre’s bailout package.  

The total indicative amount from states for loans under the Atmanirbhar scheme has reached Rs 98,066 crore.

Under the scheme, Union government-owned power sector lenders PFC and REC will give equal loan amounts to states that commit to follow a reforms path indicated by lenders. The money is to be used for paying off dues of power generating companies (gencos). 

A senior official said the formal loan applications from all states now totals Rs 87,320 crore.  The two lenders have so far sanctioned Rs 34,246 crore, of which Rs 11,222 crore has been disbursed. While REC has given out Rs 6,436 crore so far, PFC has disbursed Rs 4,786 crore.

Some states are in the process of approving guarantees to avail of the money. PFC and REC will disburse loans in equal proportion.    

The Atmanirbhar scheme is meant to tackle the liquidity crisis, but efforts by the Centre to deal with discoms’ losses and debt have not met with much success.  Under the last discom reforms scheme Ujwal Discom Assurance Yojana, the national average aggregate technical & commercial (AT&C) loss was supposed to come down to 15 per cent by March 2019. It was, however, 22 per cent by then. According to an IDFC Securities report, the total debt of discoms stood at Rs 3.76 trillion on a negative networth of Rs 80,600 crore at the end of March 2019. 

Under the loan terms of the Atmanirbhar scheme, states are required to have prepaid smart metering in government electricity connections. Besides, states should have a liquidation plan for subsidy and electricity bills payable to discoms. A system for timely payment of subsidy and electricity bills in future is also required.

Over the next three to four years, AT&C loss and average cost of supply and revenue have to be brought down. The AT&C loss or power supply loss due to inefficient system of discoms across the country was 20.8 per cent and its financial loss was Rs 18,316 crore as of December 2019. 

 Industry players, however, say such liquidity infusion should be seen only as a temporary measure and not be considered a permanent solution for the revival of the struggling power distribution sector. “For the short and medium term, lending through the package will help in addressing the liquidity problem arising due to the Covid-19 pandemic and non-liquidation of regulatory assets. The ultimate success to address the liquidity issue has to come from cost-reflective tariff, including liquidation of regulatory assets in a time-bound manner through regular tariff announcements with adequate increase,” said Hemant Goyal, chief financial officer, Tata Power Delhi Distribution (Tata Power-DDL). 

Maharashtra was the first state last month to get Rs 2,500 crore from REC under the Atmanirbhar scheme. PFC is expected to expend a similar amount to the state. 

REC had disbursed Rs 1,650 crore to Andhra Pradesh as the first tranche against sanctioned loan of Rs 3,300 crore. Telangana had also sought Rs 12,652 crore. 

REC had sanctioned another Rs 2,000 crore for Punjab and Rs 2,032 crore for Rajasthan. While all states will get a 10-year loan at 9.5 per cent, Punjab will get five years at 9 per cent.

Discoms across the country owed Rs 1.08 trillion to gencos in April. The scheme seeks to address liquidity problems of both discoms and gencos. Union Finance Minister Nirmala Sitaraman, in her 15-point agenda to boost the economy battered by the pandemic, announced a special loan scheme for discoms in May. 

Goyal of Tata Power-DDL said in the case of Delhi, there have been mounting regulatory assets over a period of 10 years and as on date Rs 25,000 -crore regulatory assets exist in all the three discoms. His company retails power in one of the three licence areas.  “Further, due to the pandemic, there has been sharp reduction in power demand and revenue collection, further aggravated due to the increased credit period and deferment of fixed charges to consumers by the state regulator. This has made discoms unable to pay power purchase and transmission bills on the due date,” said Goyal.

Under the scheme, states will need to submit guarantees against loans given to discoms. Private discoms, however, are not covered under the scheme. In such a scenario, discoms are resorting to various measures of short-term financing, like bill discounting, to honour power purchase and transmission bills to avoid levy of late payment surcharge.