Stimulus package 2.0: Power discoms get Rs 90,000 crore liquidity jumpstart

In a big relief to the domestic power sector, the government on Wednesday announced liquidity injection of Rs 90,000 crore for the perennially debt ridden power distribution companies. The liquidity injection will be undertaken by Power Finance Corporation and Rural Electrification Corporation in the discoms in two equal instalments. Finance Minister Nirmala Sitharaman said this wold ultimately benefit the end user as well.

"This amount will be used by discoms to pay their dues to transmission and generation companies. Further, CPSE gencos will give a rebate to discoms on the condition that the same is passed on to the final consumers as a relief towards their fixed charges," she said. Straddled with large payment dues of nearly 100,000 crore and faced with low demand especially from the better paying industrial segment, power distribution companies are staring at further losses in fiscal 2021. Estimates suggest dues to power generation companies are likely to increase by another Rs 20,000 crore in the current fiscal year.

"The Rs 90,000 crore stimulus to clear outstanding dues of IPPs/generators is a big positive as it will ease liquidity pressure. However, appropriate structuring for bond issuance against guarantee will be critical to raise funds in the current tight liquidity situation," said Vivek Sharma, Senior Director - Energy, CRISIL Infrastructure Advisory. "Besides, this is certainly a short-term measure. The larger issue of discom financial sustainability and turnaround remains a matter a concern."

The lockdown, now in its third stage, has resulted in the demand for electricity in the country shrink by nearly a quarter in April with manufacturing-heavy states like Uttarakhand, Gujarat, Haryana, and Tamil Nadu registering a significant 30-50 per cent drop in demand. Lower demand from industrial users that pay the highest tariffs and cross-subsidise domestic and agricultural users is expected to further hit revenues of discoms.

"To put things simply, the longer it takes for the manufacturing industry to resume operations fully, the worse it will be for the discoms," said an official at NTPC.

Also read: FM Sitharaman announces Rs 3 lakh crore collateral-free automatic loans for MSMEs

Also read: Stimulus package: FM announces Rs 90,000 crore liquidity boost for discoms