Power firms’ body calls for liquidity relief to clear Discom dues

Venkatesh Ganesh Mumbai | Updated on May 11, 2020

The Association of Power Producers has called the current situation ‘grim’ and ‘unsustainable’   -  Bloomberg

Writes again to PMO as outstanding payments to producers balloon

The Association of Power Producers (APP) has once again written to the PMO, urging opening up of credit lines to clear backlog of power dues, and extend suppliers’ credit for coal supplies and rail freight.

In an email to PK Mishra, Principal Secretary, and PK Sinha, Principal Advisor to PM, APP has urged that liquidity window be opened up through which a special line of credit by Power Finance Corporation (PFC) or REC can be provided to distribution companies (Discoms). This credit can be used to clear Discoms’ outstanding bills, which has ballooned to ₹50,000 crore, as on March. These dues are owed to Independent Power Producers.

“We had sought to bring to your attention that in order to ensure continuity in power supplies, the existing transactional structure in the power sector, which involves advance payments by the generators for coal and railway freight, was not sustainable under the current circumstances,” the letter added.

APP’s member companies have called the current situation “grim” and “unsustainable”. APP represents power companies such as Tata Power, GMR, JSW, Adani, among others.

As revenue collection by discoms have fallen by as much as 80 per cent, payments to generators have also crashed correspondingly, the letter stated.

With the extension of the lockdown and the continuing restrictions , it is estimated that revenue collection figures of May maybe worse than April.

Severe cash crunch

Many of the generators have now reached a stage where they do not have money to buy coal, pay salaries and pay for transport and LTA charges. For these generators, once coal stocks at the plants get depleted, they may have no option but to shut down the plant till their liquidity situation improves. This is where suppliers’ credit, a line of credit extended to a buyer by a seller comes in, and extending it would give the buyer more time to pay.

According to officials, electricity consumption has fallen by 20 per cent and revenue collections of discoms dropped by 36.73 per cent in March.

Total power sales fell to 4,500 million units in the same month from the expected range of 5,000 MU to 5,500 MU. States such as Andhra Pradesh have urged the Centre to extend immediate financial assistance to the power sector.

Some of the problems to power producing companies are due to the Letter of Credit (LC) mechanism introduced by the Power Ministry in June 2019, according to companies. APP in one of its earlier letters had said that operationalising LC during the period of stress involves feasibility concerns and procedural complexities as credit worthiness of power generating companies is already under stress.

Also, for any fresh lending, banks would seek government guarantees against further loans.

Published on May 11, 2020

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