The acquisition of Rural Electrification Corporation (REC) by Power Finance Corporation (PFC) may result in further straining the power distribution utilities that are struggling to pay the bills raised by generating companies.

After a ratings downgrade, the power sector financing companies are facing higher borrowing costs. According to officials in the know, the higher borrowing costs have a trickle down effect on their ability to lend to Discoms.

In December 2018, the Union Cabinet gave an in-principal approval for the strategic sale of government’s 52.63 per cent stake in REC to PFC. Prominent credit rating agencies immediately red flagged the move.

S&P placed PFC’s ‘BBB-’ Ratings on Credit Watch Negative following the acquisition. Moody’s too reviewed PFC for downgrade. CARE, Crisil and ICRA said they would monitor the development and review their ratings accordingly.

A few days later, PFC responded to the concerns and said, “We understand that the principal reason to place PFC on credit watch is the uncertainty at the moment around the pricing and financing structure/plan for the deal, and its impact on financial parameters of PFC, if any.”

“We feel that as the deal progresses, a better picture would be available on the various aspects of the transaction which will help resolve rating agencies concerns over the various financial parameters of PFC post the deal. We expect that once the deal is completed rating agencies will again review and restore back PFC’s Credit Rating,” PFC said.

But, the deal timing coincides with the closing of the financial year. “This is a matter of concern as the dependence of Discoms on PFC and REC to help clear the bills raised by power generation companies (GENCOs) peaks at this time of the year,” a top official at a public sector GENCO said.

According to data available on the Payment Ratification and Analysis in Power procurement for bringing Transparency in Invoicing of generators (PRAAPTI) portal, Discoms paid ₹21,916.15 crore to GENCOs during March 2018. This is more than twice the average amount paid in rest of the months of the year.

“Since the Discoms are not able to borrow from the financiers, they are finding it difficult to clear the bills raised by us,” the official added.

According to the PRAAPTI data, 58 Discoms owe ₹41,730 crore to 17 GENCOs as on December 2018 end.