The Centre on Wednesday approved a proposal to give one-time relaxation in working capital limit norm for discoms under the Ujwal DISCOM Assurance Yojana (UDAY) to get loans as part of the Rs 90,000 crore liquidity infusion scheme.
After the Cabinet meeting, Union Minister Prakash Javadekar in a press conference said, "Power sector has a problem. There is a slump in power consumption. The bills are not being collected by them. PFC and REC have been allowed to give loans above the limit...(of) more than 25 per cent working capital limit. This will increase liquidity of the state discoms".
"The working capital limit is 25 per cent of last year's revenue. Now, the limit is relaxed," he further said.
According to an official statement, the Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has approved a one-time relaxation to Power Finance Corporation (PFC) and REC Ltd for extending loans to discoms above limits of working capital cap of 25 per cent of last year's revenues under UDAY.
One-time relaxation will help in providing liquidity to the power sector and ensure payments by discoms, it added.
The COVID-19 outbreak and consequent nationwide lockdown have exacerbated liquidity problems for the power sector.
Revenues of the power distribution companies have nosedived as people are unable to pay for the electricity consumed, while power supplies, being an essential service, have been maintained.
Energy consumption has decreased substantially. The liquidity of the power sector is not expected to improve in the short term, as economic activity and power demand will take some time to pick up. There is, thus, an immediate need to infuse liquidity in the power sector for the continuation of power supply, it added.
Finance Minister Nirmala Sitharaman had in May announced the Rs 90,000 crore liquidity infusion into cash-strapped discoms, facing demand slump due to the lockdown to contain COVID-19.
However, some of the discoms were not eligible for getting loans under the package because they were not meeting working capital limit norm under the UDAY scheme.
Under the UDAY, the banks and financial institutions are restricted to lend working capital up to 25 per cent of a discom's revenue in the previous year.
The restriction was part of the UDAY scheme, approved in November 2015 by the Union Cabinet for the revival of debt-laden utilities.
Besides, the discoms can get the loan under the package against the receivables from state governments to clear their dues.
But some of the discoms did not have headroom under both the provisions. Thus, the power ministry had proposed to relax working capital limit norm so that these discoms can avail loans under the package to clear their dues.
