The state ranks lowest in the country’s discoms ratings and is among the large defaulting power consumers. It hasn’t raised its tariffs in the last six years but will now have to bring in operational and financial efficiencies to meet loan pre-disbursement conditions, including reduction of the gap between revenue and costs in 3-4 years.
The application by Tamil Nadu comes after the government on August 19 approved extending the power sector liquidity infusion package to cover discom dues till June 30 and allowed a one-time relaxation in working capital lending limits by Power Finance Corp and REC to electricity distribution companies. The relaxation helped Odisha, Bihar, Jammu and Kashmir and Tamil Nadu to avail loans.
PFC and REC have recently sanctioned about Rs 1,300 crore to Meghalaya and Rs 3,500 crore to Bihar under the scheme. The total sanctions under the scheme are to the tune of Rs 73,000 crore and disbursements at Rs 24,000 crore against Rs 37,500 crore. The agencies are expected to disburse another Rs 6,000 crore this week.
The special long-term transition loan to discoms for Covid-19 for tenure of 10 years are disbursed by the two lending agencies in two tranches. The discoms need to submit an unconditional and irrevocable guarantee from the respective state governments before the first disbursement. Tamil Nadu may have to undertake to provide budgetary support for loan repayment.
Prior to the second tranche of disbursement, the state governments will have to endorse plans in consultation with the power ministry to reduce their aggregate technical and commercial losses and the gap between average cost of supply and average revenue realisation over 3-4 years.
PFC and REC are offering loans under the liquidity package at 8.75% for three-year loans, 9% for five year loans, 9.25% for seven years and 9.5% for 10-year term loans. The interest rates will be valid for the next 60 days and the loans have to be used to pay the power bills.
The liquidity infusion package was launched by the Centre under the Atmanirbhar Bharat scheme. The Cabinet on May 13 approved the Rs 90,000 crore scheme allowing PFC and REC to offer concessional loans to distribution utilities to clear dues of the distribution companies till March 31 this year.
These states had hit Uday borrowing limit and were not able to avail loans under the Atmanirbhar Bharat scheme and the stress continued in the sector. Currently, banks and financial institutions can lend only 25% of a discom’s revenue in the previous year for working capital.