Rs 90K crore package: Cabinet eases working capital limit for discoms to get loan

• The move will allow more discoms to seek funds under the package

• One-time relaxation would help in providing liquidity to the power sector and ensure payments by state governments to DISCOMs

New Delhi: The Cabinet Committee on Economic Affairs (CCEA) has approved a proposal on Wednesday to relax working capital norms for discoms seeking loans from state-run Power Finance Corporation (PFC) and REC Limited under the Rs 90,000-crore package. The move will allow more discoms to seek funds under the package as many discoms were not eligible because they did not meet the working capital limit norms under the UDAY scheme. The Centre had announced the Rs 90,000-crore package for discoms earlier in May this year to revive cash flow in the stressed power sector.

"The Cabinet Committee on Economic Affairs, chaired by Prime Minister Shri Narendra Modi, has approved a one-time relaxation to Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) for extending loans to Distribution Companies (DISCOMs) above limits of working capital cap of 25 percent of last year's revenues under Ujwal DISCOM Assurance Yojana (UDAY)," said an official statement released on Wednesday.

One-time relaxation to discoms will improve liquidity in power sector

After the Cabinet meeting, Union Minister Prakash Javadekar said in a press conference, "Power sector has a problem. There is a slump in power consumption. The bills are not being collected by them. PFC and REC have been allowed to give loans above the limit more the 25 percent working capital limit. This will increase liquidity of the state discoms."

Also read: Rs 90,000 cr package: PFC, REC sanction loans to discoms worth Rs 68,000 cr in 1st tranche

"The working capital limit is (was) 25 percent of last year's revenue. Now the limit is relaxed," he further said. One-time relaxation would help in providing liquidity to the power sector and ensure payments by state governments to DISCOMs, said the statement.

The background

The outbreak of the global pandemic COVID-19 in the country and the consequent nationwide lockdown has exacerbated liquidity problems for the power sector. Revenues of the power distribution companies have nosedived as people are unable to pay for the electricity consumed while power supplies, being an essential service, have been maintained.  Energy consumption has decreased substantially. The liquidity of the power sector is not expected to improve in the short term, as economic activity and power demand will take some time to pick up. There is, thus, an immediate need to infuse liquidity in the power sector for continuation of power supply, said the statement.

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