In an unprecedented move, the Maharashtra government has urged the Centre to provide a grant of Rs 10,000 crore to the state electricity distribution company (MahaVitaran) to tide over the liquidity crunch caused by the COVID-19 crisis.
Minister of Energy Dr Nitin Raut, in a letter to the Union Power Minister RK Singh, has said that the grant is needed on a priority basis because of the precarious financial situation of MahaVitaran with a consumer base of over 2.5 crore.
“MahaVitaran has already raised a debt of Rs 18,600 crore from September 2018 to March 2020 in order to charge the liabilities towards power purchase. Besides, MahaVitaran has an outstanding loan of Rs 16,720 crore that was availed of for various infrastructure development projects. There is also an overdraft of Rs 3,500 crore for working capital. MahaVitaran's total outstanding debt burden stands at Rs 38,282 crore at the end of March 2020,” said Dr Raut.
Further, MahaVitaran has to spend an average Rs 900 crore per month for loan repayment and interest thereon. “The financial situation of MahaVitaran may worsen if the debt burden of the additional loans taken due to COVID-19 crisis is shifted to it. On the other hand, it is mandatory to pay the required maintenance and repair costs and pay the power generation companies on time for continuous power supply,” said the minister.
Dr Raut said MahaVitaran's revenue realization has halted in April and May as electricity consumption by all industrial and commercial consumers was stopped during the lockdown period. Moreover, all consumers, including residential ones, have been given an extension to pay their electricity bills. However, MahaVitaran's power purchase cost, staff salaries, and tax liability were not reduced.
“As a result, MahaVitaran has been facing unprecedented cash crunch and it's been extremely difficult for it to clear the payments of power generators since April 2020,” he noted.
Dr Raut argued that with the lower realisation of revenue, it will be difficult for MahaVitaran to make both ends meet. “Considering the expected cash shortage in the fiscal year 2020-21, MahaVitaran had approached different banks and financial institutions for financial assistance. But bankers have not responded positively,” he said.
MahaVitaran's liquidity position has also been adversely affected because of the delayed tariff approvals by the Maharashtra Electricity Regulatory Commission and the inadequacy of tariff. Due to cash constraints, MahaVitaran has been compelled to defer several payment obligations, including that of the state generation and transmission companies and independent power producers towards power purchase. This has resulted in the accumulation of outstanding payments towards the procurement of power.
Referring to the Rs 90,000 crore package by the Centre by way of funding by Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) to distribution companies, Dr Raut said MahaVitaran will hardly get any benefit, as the outstanding of the Central Public Sector Undertakings is not substantial as on March 31, 2020. “REC has provided a special term loan of Rs 2,500 crore at an interest rate of 10.50 per cent per annum and PFC is also expected to provide the sanction of Rs 2,500 crore by July. However, despite state government guarantee, there is no relief in the interest cost and this loan will also impose an additional interest cost burden of Rs 500 crore annually on MahaVitaran. Eventually, the consumers will have to bear the brunt of it,” he viewed.