COVID-19 package: Centre may directly pay power producers

Sitharaman marked Rs 90,000 cr for Discoms; Sources now indicate that may go directly to Gencos

By Kundan Pandey
Published: Thursday 14 May 2020

The Union government has worked on an arrangement to directly pay power producers or generators (Gencos) the Rs 90,000 crore liquidity injections announced for power distribution companies (Discoms) by Union Finance Minister Nirmala Sithraman on May 13, 2020, according to sources.

The government has worked out this arrangement fearing nationwide blackouts, as power producers are pressed for cash because of the nationwide lockdown to curb the spread of the novel coronavirus disease (COVID-19).

Sitharaman — at the press conference to discuss details of a Rs 20 lakh crore package announced by Prime Minister Narendra Modi — acknowledged that the revenues of Discoms had plummeted, resulting in unprecedented cash flow issues because of demand reductions.

Discoms owe Gencos around Rs 94,000 crore, according to Sitharaman.

Government-owned Power Finance Corporation (PFC) and Rural Electrical Corporation (REC) will infuse a liquidity of Rs 90,000 crore to Discoms, against the money owed, she said. This was done against state guarantees to discharge the liabilities of Discoms to Gencos, she added.

While the Centre said it ensured a liquidity injection to Discoms, the amount will reportedly be given directly to Gencos.

The lockdown period has resulted in a tough time for both Discoms and Gencos. Discoms — unable to pay their old dues — however, face an even tougher situation: They earn a major chunk of their revenue from commercial and industrial units, shut because of the lockdown.

Domestic consumers and farmers — who get electricity at a subsidised rate — were unable to pay their electricity bills as well. This has led to a situation where the coffers of Discoms are now almost empty.

The Union government, in June 2019, brought an order for Discoms to open a letter of credit (LC) in favour of Gencos. The order contained a provision that said the amount deposited in the LC will go directly to Gencos, if Discoms failed to pay their dues in 45 days.

The LC was not opened, however, because of the lockdown, resulting in a cash crisis for Gencos, according to an expert.

The Centre, however, will now reportedly pay the Gencos directly through PFC and REC. While Sitharaman’s announcement was for PFC and REC to infuse money in Discoms, sources said this was just on paper. The money will, instead, go directly to Gencos.

Down To Earth spoke to experts to understand how they perceived this development and received mixed reactions.

The actual bailout should be for Discoms, not Gencos, said Shailendra Dubey, president of the All India Power Engineers Federation.

Vibhuti Garg, an energy economist from the Institute for Energy Economics and Financial Analysis, however, said this bailout was likely to come up as the government was working out modalities for this. The government could not allow Gencos to not receive the money they were owed, as electricity was essential, she said.

Unless distribution companies go through reforms, the same situation will prevail as they don’t have incentives to speed them up, according to her.

“I think it is good because Discoms have other losses in their books and they can use the money to maintain the loss,” she said. “So, it is a good direct way to ensure money goes directly to them (Gencos),” she added.

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