As part of its plan to convey India's economy back on track, India will deliver ₹90,000 crore liquidity injection for the fund-starved electricity distribution companies (discoms).
This was declared by finance minister Nirmala Sitharaman as one of the 15 measures in the first tranche to combat the economic disruption from the coronavirus lockdown, that has deteriorated the already perilous finances of power discoms.
"Discoms today are facing unmatched cash flow problems," Sitharaman said.
This ₹90,000 crore will help in clearing the outstanding dues of discoms by state owned financial institutions.
State-owned Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) will instill the liquidity by raising an amount of about ₹90,000 crores from the market against the receivables of discoms. The state governments will provide a security.
"We want the benefit passed to the customers…we are making it clear that these benefits should pass to the end consumers," she believed.
This one-time time liquidity infusion will be used to pay the central public sector power generation companies, transmission companies, independent power producers and renewable energy generators.
State-owned PFC and REC have $80 billion by assets and are the largest lenders to the power sector. The idea is to clear the payment backlog with the concessional loans guaranteed by the respective state governments.
Energy consumption, particularly electricity and refinery products, is usually linked to overall demand in the economy.
With at least 10 states losing about a third of the power supplied to their consumers in distribution losses, their overdues have not only hit power producers, but have also added to stress in the banking sector.
These loans would be distributed in two tranches and will be linked to certain reforms such as increasing digital payment interfaces; prepaid metering in government departments and making action plans for loss reduction among others.
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