MUMBAI : The Centre’s plan to inject ₹ 90,000 crore liquidity into cash-starved electricity utilities has hit a hurdle with state governments hesitating to give guarantees. Power Finance Corp. (PFC) and its subsidiary, REC Ltd, which are supposed to disburse the relief package to state-owned electricity distribution companies ( discoms ), said states are reluctant to sign the dotted line on guaranteeing the loans and implementing the mandatory reform measures.
“The (power) ministry has been clear that we must lend only if the state guarantees the loan," a senior executive of PFC said, requesting anonymity. “We’re getting requests from several state-owned discoms on availing the loans. Uttar Pradesh’s discoms have asked for ₹ 21,000 crore. However, we will disburse these amounts only if the state governments sign a quadripartite agreement with the discoms, PFC and REC, guaranteeing the loans, recognizing past dues and ensuring our conditions for reforms are met. This is where many negotiations are stuck," said the executive.
Finance minister Nirmala Sitharaman had mandated that PFC and REC must extend ₹ 90,000 crore of special long-term transition loans for up to 10 years to discoms, conditionally, in two equal tranches. =
Loans in the first tranche will require unconditional and irrevocable guarantee from state governments covering the loan amount, plus interest and other charges. Loans in the second tranche will be conditional on loss reduction and performance improvement.
PFC and REC may offer a moratorium only on principal not exceeding three years, but interest will have to be serviced regularly. The interest rate will have a spread of up to 150 basis points over the cost of funds. One basis point is one-hundredth of a percentage point.
In the past week, the power ministry has written to senior executives of PFC urging them to expedite the loan programme, said a second official.
“The ministry’s letter said that discoms must draw these loans within two months, else the cost will go up by 50 basis points. Discoms, and their generators whom they need to pay need this money now. There’s no point if the loans are taken six months or a year from now," said the official.
“Many private power generators also borrow from us and we know that they cannot keep raising working capital loans unless the discoms pay them. The ministry must push states as well, which have to agree to increasing tariffs to take the additional (loan) cost. However, there is so much political posturing on electricity, it is slowing down the programme," the official said.
This is not the first time that states are taking on the debt burden of electricity utilities. Most states and their discoms, while joining the Ujwal Discom Assurance Yojana launched in 2015 had agreed to achieve a number of milestones relating to reduction in aggregate technical and commercial losses, increase in tariffs and implemention of better metering systems. However, these milestones are yet to be achieved in most states.
