Cabinet eases working capital cap for discounted loans

Union Cabinet approved one-time relaxation to PFC and REC for lending to Discoms above working capital ceiling limits

The Cabinet Committee for Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, approved a one-off easing granted to Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) for granting loans to distribution companies (Discoms) above limits 25% working capital cap of last year’s income under Ujwal Discom Assurance Yojana (UDAY).

the Cabinet believes that the one-time easing would help provide liquidity to the power sector and secure payments from state governments to Discoms.

The outbreak of the global COVID-19 pandemic in the country and the resulting national lockdown has exacerbated liquidity problems in the country’s power sector.

The CAMC statement indicates that the Discounts income “Nodded because people are unable to pay for the electricity consumed – while the power supplies, which are an essential service, have been maintained.” Adding further that energy consumption has decreased significantly and the liquidity of the electricity sector is not expected to improve in the short term, as economic activity and demand for electricity will take some time to recover . “There is therefore an immediate need to inject liquidity into the electricity sector for the continuation of the electricity supply.”

The easing will not allow states like Tamil Nadu, Odisha, Bihar and Jammu and Kashmir to benefit from around Rs 32,000 crore loans under the Rs 90,000 crore liquidity injection package. Center for Power sector.

The infusion pack was launched by the Center under the Atma Nirbhar Bharat scheme. The Cabinet had, on May 13, 2020, approved the regime allowing PFC and REC to provide concessional loans to distribution utilities to clear the liabilities of power generation and transmission companies, including renewable energy producers.

Initially, loans were to be made to Discoms against guarantees from state governments or those with leeway to borrow more within the working capital limits prescribed under the UDAY program. Now, the easing will directly help Discoms that do not have claims on states or available leeway below the working capital limits imposed under the necessary relaxation of the Uday limit.

It is believed that PFC and REC have (so far) sanctioned loans of Rs 68,000 crore to various Discoms as part of the infusion package, of which approximately Rs 23,000 crore has been disbursed.

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