Interview with R.S. Dhillon

“PFC has a well-defined business growth plan”

R.S. Dhillon
R.S. Dhillon

Power Finance Corporation Limited (PFC) has witnessed strong growth in 2019-20 and continues to grow despite the challenges posed by the Covid-19 pandemic. With sanctions of over Rs 730 billion to discoms under the liquidity infusion scheme, the PFC Group has immensely helped discoms tide over the crisis posed by the current situation. In an interview with Power Line, R.S. Dhillon, chairman and managing director, PFC, talks about the company’s achievements and plans, as well as the outlook for the sector…

What were PFC’s key achievements in the past year?

The past year has been excellent for PFC. We have witnessed a robust business growth, with our loan book increasing by about 10 per cent. We sanctioned loans aggregating Rs 1.11 trillion, which is PFC’s second highest sanction ever. We also disbursed Rs 680 billion, which is PFC’s highest ever annual disbursement. On the borrowing front, we were able to raise $3 billion from international markets at competitive rates, which is among the highest amount for Indian companies. Our collection under the 54EC capital gains tax bonds has also crossed Rs 11 billion annually, increasing almost four times since their launch in 2017-18.

The end of the past financial year saw many businesses impacted due to lockdown measures to prevent the spread of Covid-19. However, I am proud to share that PFC continued its operations even in the lockdown and disbursed about Rs 110 billion in the last week of March 2020. On the profitability front, we performed well, considering that the Indian rupee saw a sharp depreciation in the last quarter of the financial year amidst Covid-19, to register a profit of about Rs 56.55 billion. On the stressed assets front, we could resolve two of the large thermal stressed assets, GMR Chhattisgarh and RattanIndia Amravati, with an aggregate amount of over Rs 25 billion.

What is the status of implementation of the central government’s liquidity infusion scheme?

PFC and its subsidiary REC are funding the entire amount of Rs 900 billion as the liquidity injection scheme under the Atmanirbhar Bharat initiative. The scheme envisages a state government guarantee as security and is backed by receivables from the state government in terms of the subsidy and dues from state departments. The response from states has been quite encouraging and we have received requests for funding from almost all the eligible utilities. We are also considering funding beyond the Ujwal Discom Assurance Yojana limits, in line with the government’s directions. Under the scheme, the PFC Group has already sanctioned over Rs 730 billion to the state-owned discoms so far, to be released in two tranches. Of this, about Rs 250 billion has already been disbursed by the PFC Group under the first tranche. Disbursement under the second tranche is linked to compliance with reform-related conditions such as enabling digital payments, self-assessment by consumers, installation of smart prepaid or prepaid meters and improvement in the aggregate technical and commercial loss trajectory. I am happy to share that certain states are already making sincere efforts to comply with these conditions and we expect that at least five states may avail of disbursement under this tranche within the third quarter. Also, in line with the government’s recent announcement, we have extended our coverage under the scheme to the clearance of dues up to June 30, 2020. We expect that this enhancement in coverage will call for an additional funding of Rs 300 billion-Rs 350 billion.

How is the resolution of stressed assets progressing?

Of the PFC’s loan book of over Rs 3.5 trillion, more than 83 per cent are government borrowers, where there have been no non-performing assets (NPAs) and we expect this trend to continue. The majority of stressed projects in the private sector loan book have been recognised as NPAs and we have made sufficient provisions against these loans, based on our experience and market trends.

PFC has been working steadily to reduce NPAs and 2019-20 witnessed the lowest NPAs during the past three to four years. During the past year, we were able to resolve two major loan assets of Rs 26 billion, GMR Chhattisgarh and RattanPower’s Amravati. In the current financial year, post the Covid-19 lockdown, PFC has successfully resolved two stressed assets of around Rs 13 billion, Essar Power Transmission and Suzlon Energy. In fact, in the Essar Transmission project, we have recovered the entire principal and most of the outstanding interest.

In our stressed asset portfolio, 17 projects are being resolved through the National Company Law Tribunal (NCLT). Due to the pandemic, the resolution process under the NCLT has slowed down, but we expect it to normalise as we go ahead. For the other 11 projects, lenders are actively pursuing resolution outside the NCLT and we expect to close some projects by the end of the financial year.

What has been the impact of RBI’s moratorium on payments on PFC’s receivables?

In line with Reserve Bank of India (RBI) guidelines, PFC also offered the option of a moratorium on instalments falling due between March 1, 2020 and August 31, 2020. The total amount under the moratorium is over Rs 200 billion, which is about 57 per cent of the dues receivable by PFC during the period. There has been no impact on PFC due to the moratorium, except for a short-term impact on liquidity, as no moratorium was available to PFC for servicing its own debt obligation, whereas a moratorium was provided to borrowers. We would have better visibility on this as the Covid situation pans out.

What are PFC’s fund mobilisation and borrowing portfolio diversification plans?

PFC has already raised almost Rs 580 billion from domestic markets at competitive rates in this financial year and over 70 per cent of the debt obligation requirement has already been met. Considering PFC’s high creditworthiness and the availability of diversified funding avenues such as bond ETFs and foreign markets, we believe that PFC would continue to comfortably mobilise resources from various markets. Over the past few years, PFC has been making constant efforts to diversify its borrowing portfolio and we will continue to take steps in this direction, going forward. Our foreign currency borrowings are now 16-17 per cent of our total borrowings, which, until a few years back, used to be 4-5 per cent. We are planning to raise foreign currency loans and expect that to be a significant part during the rest of the financial year.

What are some of the key issues and challenges in the sector?

The true impact of the Covid-19 pandemic on the economy is not yet fully known. We are keenly watching the scenario unfolding after the lifting of the RBI moratorium. GDP growth needs to get back on track. We expect that the liquidity measures taken by the government will help the economy get back to its high-growth trajectory. This would, in turn, lead to a healthy power demand growth and improvement in thermal plant load factors.

The Covid-19 pandemic worsened the woes of power players, especially distribution companies. However, with the liquidity injection package under Atmanirbhar Bharat, central sector gencos and transcos as well as IPPs including renewable energy generators have received some reprieve with the clearance of their dues to a certain extent. We believe that the improvement in the financial health of discoms is the only way forward in the long run.

To strengthen the sector, including distribution, the government is focusing on many reform initiatives. The proposed amendments to the Electricity Act, 2003 are aimed at addressing issues that are adversely impacting the financial viability and investments in the sector. Further, the proposed amendments to the National Tariff Policy, such as capping of losses at 15 per cent for the determination of tariff, higher penalties for non-compliance with renewable purchase obligations and restrictions on the creation of new regulatory assets will help make the sector more efficient.

One of the issues facing the sector is the renegotiation of PPAs by discoms, which is leading to a lot of uncertainty in the sector. We believe that the proposed amendments to the Electricity Act, 2003 for the establishment of an Electricity Contract Enforcement Authority to enforce the performance of contracts such as PPAs, fuel supply agreements and transmission service agreements related to power generation and transmission will help address the issue of renegotiation of PPAs by discoms. Recently, the Ministry of Power has issued guidelines to procure renewable power round the clock, complemented with power from coal-based thermal projects, which is aimed at enhancing grid stability, keeping in view the intermittency of power, limited hours of generation and low capacity utilisation factors of renewable projects.

What is the company’s future growth outlook?

At present, due to the pandemic situation, there is a general slowdown in construction activity and setting up of new projects. However, lending under the discom liquidity package is a good business opportunity for PFC. Also, we continue to focus on refinancing opportunities to increase our’ commissioned assets. We are also looking to focus more on renewable projects as the government’s continuous push to this segment has kept investor confidence steady. Further, the government’s directives on the implementation of flue gas desulphurisation technologies is another potential business area for PFC. We have already sanctioned quite a number of projects under this initiative and are continuously looking for opportunities in this segment. We are also actively looking at financing waste-to-energy projects, where we have already sanctioned a few projects.

With the continued focus on renewable energy, avenues have also opened up for funding manufacturing facilities for renewable energy generating equipment as well as energy storage systems. Huge investments are expected in sunrise sectors such as e-vehicles and charging infrastructure. PFC intends to tap these emerging opportunities to grow its loan portfolio profitably. To conclude, we believe that PFC has a well-defined business growth plan to move ahead on a sustainable basis in the years to come.


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