The government on Wednesday announced a ₹90,000 crore liquidity injection into fund-starved electricity distribution companies (discoms) as part of a stimulus package to revive the country’s battered economy.
The announcement, made by finance minister Nirmala Sitharaman, is one of the measures in the first tranche of a stimulus package to combat the economic disruption that has worsened the precarious finances of discoms.
“Discoms today are facing unprecedented cash-flow problems,” Sitharaman said.
Electricity demand load shifted to homes during the lockdown, resulting in lower realizations. With peak electricity demand coming down, commercial and industrial power demand has taken a hit after many factories shut.
The ₹90,000 crore infusion, which is linked to reforms, will help in clearing outstanding dues of discoms to state-owned financial institutions. Mint reported the proposed power sector package on Wednesday.
The state-owned Power Finance Corp. (PFC) and Rural Electrification Corp. (REC) will infuse the liquidity by raising ₹90,000 crore from the markets against the receivables of discoms. These funds will be then given to discoms against state government guarantees for the sole purpose of discharging their liabilities.
The government has also asked the central public sector generation companies to give rebate to discoms that will be passed on to the end users.
“…we are making it clear that these benefits should pass to the end consumers,” Sitharaman said.
State-owned PFC and REC have $80 billion by assets and are the largest lenders to the sector. The idea is to clear the payment backlog with concessional loans guaranteed by the respective state governments.
The one-time liquidity infusion will be used to pay the public sector generation firms, transmission companies, independent power producers and renewable energy generators. The dues of discoms to power generation and transmission firms are to the tune of ₹94,000 crore. These loans will be disbursed in two tranches and be linked to certain reforms such as increasing digital payment interfaces; prepaid metering in government departments; and coming up with a concrete plan to reduce losses.
This comes amid India’s proposed distribution reforms scheme—tentatively named Atal Distribution System Improvement Yojana (Aditya)—to cut electricity losses below 12%. The scheme aims to ensure continuous supply of power, adopting models such as privatizing state-run discoms and promoting retail competition.
Sitharaman also spoke about the JAM trinity solution—Jan Dhan Yojana, Aadhaar and mobile numbers—as a game-changing reform for better targeting of subsidies.
The National Democratic Alliance government has readied a raft of power sector reforms, including implementing the direct benefit transfer scheme in the electricity sector for better targeting of subsidies. According to the draft Electricity Act (Amendment) Bill 2020 to the Electricity Act, 2003, the government has also pitched for a cost reflective tariff and setting up an Electricity Contract Enforcement Authority to enforce power purchase agreements.
