Relief package worth ₹90,000 crore expected to boost credit profile of gencos

The ₹90,000-crore relief package announced for distribution companies (Discoms) under the Atmanirbhar Bharat Abhiyan would boost the credit profile of generating companies.

This would materially reduce their working capital requirements and consequently the debt taken to fund receivables, according to India Ratings (Ind-Ra).

This move will benefit all power companies including central public sector enterprise (CPSE) gencos and transmission companies (Transcos), independent power producers (IPPs) and renewable (RE) generators. However, the impact could vary across different generating classes and be dependent on the quantum of funds released, the ability of discoms to borrow under the scheme and the timeline over which it is implemented. Ind-Ra does not expect any rating changes on account of the expected reduction in receivables.

Increasing debt

The Discom overdues to all gencos increased to ₹91,700 crore as of March 2020 from ₹55,300 crore as of March 2019, the overdues to CPSE gencos increased to ₹30,900 crore. The dues are likely to increase further during the lockdown period, given the lower demand and collections seen by Discoms. The high receivables for Gencos have led to a pile-up of debt and subsequent deterioration in their credit profile.

According to the Ministry of Power and Power Finance Corporation Ltd, the amount will be lent to discoms in two tranches — 50 per cent in Tranche I and the rest in Tranche II by REC Limited and Power Finance Corp.

The disbursements of loans to discoms are subject to the implementation of reforms such as liquidation of dues and subsidies by State governments, installation of smart meters and improving operational and financial efficiency. These loans will be secured with unconditional and irrevocable State government guarantees covering the loan amount along with interest and any other charges towards the loans.

The first tranche could be released to gencos directly post approval from respective discoms. However, the ability of discoms to borrow under this scheme could be dependent on the headroom available for further borrowings within the working capital limits prescribed under the Ujjwal DISCOM Assurance Yojana. In case of lower headroom, the borrowing would be limited to the receivables Discoms have from respective States.

Till now, the two-part tariff structure for CPSE gencos has remained unscathed. Given the high capital cost of newer plants, the fixed cost itself has increased over the years. Additionally, the increasing divergence between plant availability factor and plant load factor has resulted in a significant elevated per unit fixed charge for Discoms. Thus, power purchase cost for Discoms under two-part tariffs is significantly higher than that for renewables in case of low plant load factors. The package opens up a window for Discoms to press hard for negotiations on fixed costs.