August 2020

Undoubtedly, one of the most significantly disrupted segments in the power sector due to Covid-19 and the resultant lockdown has been power distribution. The segment’s finances have taken a hit, creating an acute liquidity crisis across the power value chain.

The government and regulatory response to the crisis has been quick. The government has announced a series of proactive measures to address these challenges, including rebates on late payment surcharges (LPS), waivers on the payment security mechanism and a moratorium on debt servicing. The most significant step was the Rs 900 billion liquidity infusion package announced under the Atmanirbhar Bharat Abhiyan to address the cash flow problem of discoms. The package will enable discoms to raise loans through PFC and REC to clear their outstanding payments to generators and transmission companies till March 2020.

In the past month, some important follow-up measures have been announced under this package, including the finalisation of a proposal for increasing the corpus of the package to Rs 1.25 trillion to clear dues till June 2020 and an increase in the borrowing limits for states that were not able to access the funds owing to fiscal responsibility and budget management (FRBM) restrictions. To recall, a key request was made to the Finance Commission by the power ministry to expand the borrowing space after concerns were raised that the states will not be able to borrow under the liquidity package as they had reached their borrowing limits under the FRBM.

Experts agree that the stress in the sector has been exacerbated, and not caused, by the Covid-19 lockdown. As per the UDAY portal, the ACS-ARR gap stood at Re 0.41 per unit as of March 2020. This led to a sharp increase in the loss levels for discoms, from Rs 296 billion in 2017-18 to Rs 496 billion in 2018-19.

These measures can bring about significant improvements in discom finances and can help reduce their outstanding dues. As per the latest updates, of the Rs 900 billion, around Rs 680 billion worth of funds have been sanctioned against loan applications for almost Rs 1,060 billion.

Power Line’s Infocus section on power distribution this month takes a closer look at these developments.

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