Discoms propose asset monetisation to charge up working capital needs

State-owned power distribution companies (discoms) have mooted the idea of asset monetisation to the Centre to free up working capital for infrastructure growth. The idea was backed by several state power departments and discoms in a recent meeting of the committee formed by the union ministry of power for ‘Debt Sustainability of Discoms’.

The move comes at a time when states are facing record power demand. But at the same time, there has also been a spike in the electricity supply deficit in several states. Experts have pointed out that while at the national level the grid efficiently manages the load, states pose a challenge due to their redundant transmission networks and limited capacity for purchasing surplus electricity.

The union power ministry, through this committee which has representation from states, wants to explore new financing avenues for discoms. According to multiple sources, the committee has discussed monetising assets of discoms such as transmission networks and land banks.  One mode of monetisation proposed is the Infrastructure Investment Trust (InvIT) route.

The committee is chaired by Rajesh Lakhoni, chairman and managing director of the Tamil Nadu Generation and Distribution Corporation’s (TANGEDCO). The committee has members from discoms in Rajasthan, Maharashtra, Andhra Pradesh, Telangana and state-owned financiers PFC and REC. An executive said REC has already appointed PwC as a financial consultant for this.

“The interest on our borrowing is generally taken care of by the tariff. However, dealing with the principal amount is a cause of concern for discoms. We are considering several such options to shift the burden from discoms. One such option was the Ujwal DISCOM Assurance Yojana (UDAY) scheme, but then the finances of the state governments may come under pressure. Hence, InvITs are under consideration,” said a source aware of the development.

According to a person in the know, the idea is to have a trust at the state level for discoms or a nodal trust at national level, which can be utilised by companies from all the states. “We want to transfer loan from discom books and this is one of the options under consideration,” the source added.

The fourth debt reconstruction scheme for discoms floated by the Centre and the first discoms reforms by the BJP government is UDAY, aimed at cleaning their accumulated financial and operational losses. The scheme allowed the state governments to take over the losses of their discoms and issue bonds. While this had helped clear the legacy loss and debt, losses have increased since the scheme concluded in 2019-20.

The latest discoms reforms scheme RDSS has a different approach by tying the budgetary grant of the central government backed power infrastructure schemes with the operational and financial performance of the discoms. It does not have any debt recycling portion.

Several discoms continue to face high debt levels, despite reduction in their booked losses. Out of these, the financially beleaguered state-owned ones are facing liquidity crunch and reduced capital expenditure by their state departments, revealed the latest Annual Integrated Ranking and Rating report by Power Finance Corporation (PFC) in April this year.

As the power demand touches a new record every month, the discoms face additional pressure to improve their power supply operations. This has led to a 24 per cent increase in the sectoral debt. The report said the total sectoral debt stood at Rs 6.20 trillion during FY20-FY22.

For the reported year 2021-22, current liabilities of discoms exceed their overall current assets, and amounts to nearly twice the value of their current liquid assets. The sector’s total liquidity gap stands at Rs 3.03 trillion, said the report, adding that the combined liquid assets of discoms are adequate to cover only their generation, transmission, and operational liabilities.

POWER UP

- Move comes at a time when states are facing record power demand

- InvIT model proposed for monetisation

- Transmission assets proposed to be monetised

- REC, PFC part of the states-led panel of the power ministry