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Home / Business News / Govt to ease borrowing cap in relief for discoms

Govt to ease borrowing cap in relief for discoms

The draft cabinet note seeks a one-time exemption for discoms from the conditions for accessing working capital under UDAY.Discom dues have hit power producers and contributed to the stress in the banking sector

business Updated: Jul 29, 2020 06:55 IST
Utpal Bhaskar
Utpal Bhaskar
The Union power ministry has highlighted to the 15th Finance Commission the need for a recalibration of borrowing limits for states under the Fiscal Responsibility and Budget Management Act.
The Union power ministry has highlighted to the 15th Finance Commission the need for a recalibration of borrowing limits for states under the Fiscal Responsibility and Budget Management Act.

The Union power ministry plans to request the cabinet to consider raising the borrowing limits of debt-laden state electricity distribution companies (discoms) so that they qualify for the 1.25 trillion reform-linked loan package, two people aware of the development said.

The circulated draft cabinet note seeks a one-time exemption for the discoms from the conditions laid out for accessing working capital under the Ujwal DISCOM Assurance Yojana (UDAY).

The Union government had announced the liquidity injection into discoms as part of a stimulus package to revive India’s virus-battered economy. The money is to be raised by state-owned Power Finance Corp. and Rural Electrification Corp. from the market against the receivables of discoms.

“The draft cabinet note has been circulated for inter-ministerial consultations,” said a senior government official, one of the two people cited above, requesting anonymity.

The 90,000 crore, 10-year loan package, announced to help discoms clear outstanding dues up to 31 March, will now cover losses till June, with the package corpus now expected to reach 1.25 trillion. The Union power ministry is also examining the possibility of a reduction in interest rates for these loans.

Queries emailed to a power ministry spokesperson remained unanswered.

“This money will help discoms repay most of the money that they owe power generators and transmission companies. It will help restart the virtuous cycle of cash flow in the power sector,” the government said in a statement earlier.

The scheme involves loans to be disbursed in two tranches and is linked to certain reforms such as increasing digital payment interfaces; prepaid metering in government departments and preparing action plans to reduce losses among others.

Loans in the first tranche will require an unconditional and irrevocable guarantee from states covering the loan amount, plus interest and other charges. Loans in the second tranche will be conditional on loss reduction and performance improvement.

“The discoms that do not have headroom under UDAY working capital limits but have receivables from state governments in the form of electricity dues, and subsidy not disbursed will also be eligible for these loans to the extent of receivables from the state governments,” the Union government had said in the statement.

“In addition, the respective states may request for relaxations of the limit to the government of India for the discoms that do not have receivables from states or headroom available under the working capital limits imposed under UDAY,” the statement added.

The Union power ministry has also highlighted to the 15th Finance Commission the need for a recalibration of borrowing limits for states under the Fiscal Responsibility and Budget Management Act.

With at least 10 states losing about a third of the power supplied to their consumers in distribution losses, their dues have not only hit power producers but have also contributed to stress in the banking sector.

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