Cabinet Okays One-Time Relaxation for PFC, REC to Lend to Discoms under UDAY

The Cabinet Committee on Economic Affairs has approved a one-time relaxation to lenders Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) for extending loans to power distribution companies (Discoms) above limits of working capital cap of 25 per cent of last year’s revenues under Ujwal Discom Assurance Yojana (UDAY).

August 20, 2020. By Manu Tayal

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

The Power Ministry said that this one-time relaxation would help in providing liquidity to the power sector and will ensure payments by state governments to Discoms.

The move is in the wake of the outbreak of corona virus pandemic in the country and the consequent nationwide lockdown, which has exacerbated the liquidity problems for the power sector. 

Also, revenues of Discoms nosedived as people are unable to pay for the electricity consumed while power supplies, being an essential service, have been maintained. 

Moreover, the energy consumption has also decreased substantially due to shutdown of economic activity across the country.

It is expected that the liquidity of the power sector will not 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 continuation of power supply.

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