Modi loosens the purse strings to help struggling state utilities


The government has relaxed the rules which cap the amount the nation’s cash-strapped electricity distribution companies (discoms) can borrow in a one-off move to add much-needed liquidity to the power sector.

The two bodies chiefly responsible for lending to struggling state discoms – the state-controlled Power Finance Corporation and the REC rural electrification body it holds a controlling stake in – can usually lend no more than a quarter of the revenues they have reported in the previous year, under the terms of the Ujwal Discom Assurance Yojana national program set up in 2015 to revive power company finances.

However, the Ministry of Power has stated: “The cabinet committee on economic affairs, chaired by prime minister Narendra Modi, has approved a one-time relaxation to [the] Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) for extending loans to discoms above [the] limits of working capital cap of 25% of last year’s revenues under [the] Ujwal Discom Assurance Yojana.”


The move has been taken after the Covid-19 lockdown instituted in March prompted falling power demand and worsened the already chronic cashflow situation of many state discoms.

Analysts at Mumbai-based credit ratings agency Care Ratings estimate the amount of money owed by discoms to power generators rose 22% in the February-to-June period to Rs1.19 lakh crore, with disruptions to the billing and payment collection processes further deepening the plight of utilities.

The state power distribution company of Rajasthan owed the highest amount to generators, with debts of Rs34,971 crore, followed by Tamil Nadu (Rs18,077 crore), Uttar Pradesh (Rs13,694 crore), Maharashtra (Rs11,399 crore), Telangana (Rs7,180 crore), Karnataka (Rs6,393 crore) and Jammu and Kashmir (Rs5,865 crore). Those seven discoms accounted for 82% of the outstanding dues owed nationwide. 

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