Government Relaxes Working Capital Norms For Power Distribution Firms

The government on Wednesday approved a proposal to give one-time relaxation in working capital limit norm for power distribution companies (discoms) under the Ujwal DISCOM Assurance Yojana (UDAY) to get loans as part of the Rs 90,000 crore liquidity infusion scheme. Addressing the media after the cabinet meeting chaired by Prime Minister Narendra Modi, Union Minister Prakash Javadekar said, "Power sector has problems. The bills are not being collected by them. PFC and REC have been allowed to give loans above the limit more the 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," Mr Javadekar said.

According to an official statement, the Cabinet Committee on Economic Affairs 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 nationwide lockdown have exacerbated liquidity problems for the power sector.

Revenue of the power distribution companies has 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.