Stimulus Package

Industry reactions on credit line announced by finance minister for discoms

Sumant Sinha, CMD, Renew Power

”The Rs 900 billion liquidity infusion into discoms will breathe fresh life into the power sector and protect distribution companies from going bankrupt. This money will help the discoms to repay most of the Rs 92,000 crore outstanding payments that they owe to power generators, restarting the virtuous cycle of liquidity, higher investments and rapid growth for the power sector. This may also be an opportune time for the government to convince states to expedite distribution sector reforms so that distribution companies don’t need a bailout next time and are able to become financially viable entities.”

Rajiv Srivastava, Managing Director and CEO, Indian Energy Exchange Limited

“The most remunerative source of income for discoms from industrial and commercial users has been deeply impacted by the COVID-19 lockdown. The Rs 900 billion liquidity injection is a welcome relief for financially stressed DISCOMs. The measures like PFC/ REC loans, rebates and reforms announced by the Central Government will go a long way in creating the much needed fiscal space in the power sector value chain.At IEX, we have been at the forefront to support DISCOMs in their dual role of ensuring 24*7 uninterrupted power availability as well as enabling optimisation that improves financial liquidity during the crisis. They have met increased domestic demand as well as demand from the stressed healthcare and utilities sector and replaced costlier generation with low cost power available on the Exchange, thereby reducing power procurement costs leading to significant savings.”

 

Prabhajit Sarkar, Managing Director & CEO – Power Exchange India Limited

“The Finance Minister’s announcement of infusing Rs 900 billion into the discoms of the country is a significant and welcome news given the perilous situation that entire power sector value chain had entered into due to the COVID 19 pandemic.While a large portion of the Discom payables to generating and transmission companies had piled up over a period prior to COVID 19, yet the pandemic situation had rapidly heightened the cash flow crisis starting from the consumer right up to the generating companies and affecting all entities in between.It has been proposed that this financial incentive would be linked to specific activities/reforms like Digital payments facility by Discoms for consumers, liquidation of outstanding dues of State Governments as well as Discom’splan to reduce financial and operational losses. Furthermore, the Rs 900 billion loan to be specifically used for discharging liabilities towards Gencos and Gencos in turn passing the benefit of rebates to Discoms such that they can be further provided to consumers, is also a welcome proposition.”

 

 Sabyasachi Majumdar, Group Head &Senior Vice President – Corporate ratings, ICRA Limited

“The liquidity infusion of Rs. 900 billion is a significant positive for the IPPs impacted by the long delays in receiving payments from discoms, with outstanding dues to power generation and transmission companies standing at around Rs. 940 billion. This is especially positive for renewable IPPs in the states of Andhra Pradesh, Rajasthan, Telangana and Tamil Nadu, which are reeling under pending dues of 8-12 months from these state discoms. This would enable the IPPs to lower their working capital interest burden in the near term and improve their liquidity and debt coverage position.”

 

Deepto Roy, Partner, Shardul Amarchand Mangaldas & Co

“This measure can have a transformative effect on the power sector since it addresses what have been traditionally considered the weakest link- distribution. It woulds provide immense liquidity to the power generators, which have been struggling with balooning dues from the Discoms. This in turn will result in payment of long outstanding dues of the power generators to the banks.Further, this measure can also solve the problem of regulatory assets (which is a term used to describe the balance owed by the Discom to a State Government, towards subsidies and discounted supply of electricity). Burgeoning regulatory assets have been a major issue for the distribution sector, so much so that the amendment to the Electricity Act recently proposed by the Ministry of Power, proposes to remove any subsidies in consumer tariff (with the State Government directly making cash transfers to the consumers entitled to the benefit of discounted electricity).  In the Finance Ministry’s proposal, a gatekeeping condition is that the loans will will be contingent on the respective state government undertaking to clear the  dues to its Discoms in three years. Given the challenge that Discoms have faced with State Governments this condition may be difficult for some Discoms to traverse. However, given the unprecedented nature of the crisis that leads to these steps it can be hoped that this step will be successful. If it does, it will revitalize the power sector all the way to its roots.”

Rakesh Alshi, Partner, Deloitte India

“This will get the cycle running wherein the Distribution companies will be able to pay all the dues of Generating companies and finally the benefit will flow to the consumer. Liquidity support to Discoms through monetisation of receivables is a huge relief to the Power & Utility sector, given that both GenCos and investors have struggled to fund continuing operations and new capacity addition in recent times. It is however key that this liquidity injection hits the road rather quickly which it helps GenCos avoid defaults on debt servicing.”

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