The Government of Andhra Pradesh has provided a state-backed guarantee for distribution companies (DISCOMs) to avail ₹66 billion (~$873.4 million) loan from the Power Finance Corporation Limited (PFC) and Rural Electrification Corporation Limited (REC).

This follows the central government’s recent announcement for a ₹900 billion (~$11.91 billion) relief package by the finance ministry to help struggling DISCOMs pay the power generators on time. The funds were announced solely for clearing liabilities to power generating companies and are to be issued only against state guarantees.

As of March 31, 2020, power dues payable by Andhra Pradesh DISCOMs amounted to ₹66.73 billion (~$883.13 million). The Andhra Pradesh Southern Power Distribution Company Limited (APSPDCL) had power dues of ₹45.38 billion (~$600.57 million), while the Andhra Pradesh Eastern Power Distribution Company Limited (APEPDCL) had dues of ₹21.35 billion (~$282.55 million).

According to the Andhra Pradesh’s liquidation plan for state receivables and timely payments, receivables from the state government stood at ₹108.28 billion (~$1.43 billion), as of March 31, 2020. This included an adjusted advance by the state towards tariff subsidy reimbursements amounting to ₹3.89 billion (~$51.48 million). Based on this, state DISCOMs were eligible for a loan of ₹108.28 billion (~$1.43 billion) from the PFC and REC at the following interest rates:

However, since the total power purchase dues were lower than the receivables from the government, the Andhra Pradesh Transmission Company (APTRANSCO) and the Andhra Pradesh Power Coordination Committee (APPCC) asked the government to provide a state guarantee for ₹66.73 billion (~$883.13 million) to enable the Andhra Pradesh Power Finance Corporation Limited (APPFCL) to secure loans from banks, financial institutions, or the market on behalf of DISCOMs.

Alternatively, they asked the state to provide a guarantee for ₹66.73 billion (~$883.13 million) and to allow DISCOMs to avail the loan directly from the PFC and REC under its Atmanirbhar commitment. It also asked the state to adjust the balance advance of ₹3.89 billion (~$51.48 million) already provided to DISCOMs by the state.

In its order, the state granted permission to DISCOMs to avail ₹66 billion (~$873.4 million) in loans from PFC and REC to pay their power dues under the government’s Atmanirbhar Bharat Abhiyan policy. It also agreed to abide by the government’s guidelines under the policy and allowed for the adjustment of the balance advance of ₹3.89 billion (~$51.48 million).

The state noted that these funds were to be given to DISCOMs in the state, provided that they are used only towards power purchase charges. It also said that that the loans were to be repaid using the DISCOMs’ internal resources.

Additionally, the state-directed APPFCL to service the state DISCOMs’ existing loan of ₹56.5 billion (~$747.74 million) until it is repaid in full.

A few weeks ago, the REC made an announcement offering loans to DISCOMs to help them clear their dues. The loans under this program will be co-funded by REC and PFC in equal amounts. As per the announcement, 50% of the loan will be provided in Tranche-I, and the balance 50% will be provided in Tranche-II.

Recently, Union Minister of Power R.K. Singh sought the Finance Commission’s support to revamp the Indian power sector at the state level and asked for ₹3 trillion (~$40.05 billion) over the next five years to help achieve this goal. The funds will be used to focus on reduction of losses, separate feeders for agriculture, and smart prepaid meters, in light of the poor financial performance of DISCOMs.

Mercom has previously written about how distribution companies have been a significant strain on the Indian power system. Their poor financial performance has been weighing down the entire sector with their inability to pay power generators on time, manage their losses, and iron out other inefficiencies.