Cabinet Relaxes Working Capital Limit for Loans to Discoms

The Union Cabinet has approved a one-time relaxation to PFC and REC for extending loans to Discoms above limits of the working capital cap

The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, has approved a one-time relaxation to Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) for extending loans to Distribution Companies (Discoms) above limits of the working capital cap of 25 percent of last year’s revenues under Ujwal Discom Assurance Yojana (UDAY).

The Cabinet believes that the one-time relaxation would help in providing liquidity to the power sector and ensure payments by State Governments to Discoms.

The outbreak of the global pandemic COVID-19 in the country and the consequent nationwide lockdown have exacerbated the liquidity problems for the country’s power sector.

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The statement by the CCEA states that the Discoms revenues “have nosedived as people are unable to pay for the electricity consumed – while power supplies, being an essential service have been maintained.” Further adding that energy consumption has decreased substantially and that the liquidity of the power sector is not expected to improve in the short term, as economic activity and power demand will take some time to pick up. “There is, thus, an immediate need to infuse liquidity in the power sector for the continuation of power supply.”

The relaxation will no enable states like Tamil Nadu, Odisha, Bihar and Jammu and Kashmir to avail about Rs 32,000 crore loans under the Centre’s Rs 90,000 crore liquidity injection package for the power sector.

The infusion package was launched by the Centre under the Atma Nirbhar Bharat scheme. The Cabinet had on May 13, 2020, approved the scheme allowing PFC and REC to offer concessional loans to distribution utilities to clear liabilities of power generation and transmission companies including renewable generators.

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Initially, the loans were to be provided to the Discoms against guarantees by state governments or those that had headroom for further borrowing within the working capital limits prescribed under the UDAY scheme. Now, the relaxation will directly help Discoms that do not have receivables from states or headroom available under the working capital limits imposed under Uday needed relaxation of the limit.

It is believed that PFC and REC have (so far) sanctioned Rs 68,000 crore loans to various Discoms under the infusion package, of which about Rs 23,000 crore have been disbursed.