Cabinet relaxes working capital limit for power discoms as COVID-19 relief

The Union Cabinet on Wednesday approved a one-time relaxation to Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) for extending loans to discoms (distribution companies) above limits of working capital cap of 25% of last year’s revenues under Ujwal DISCOM Assurance Yojana (UDAY).

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 25% working capital limit. This will increase liquidity of the state discoms."

"The working capital limit is 25% of last year’s revenue. Now the limit is relaxed," he added.

One-time relaxation would help in providing liquidity to the power sector and ensure payments by State governments to discoms.

In May this year, Finance Minister Nirmala Sitharaman had announced Rs 90,000 crore liquidity infusion into discoms, which were facing a demand slump due to the coronavirus lockdown.

However, as the discoms did not meet the working capital limit under the UDAY scheme, they were not eligible for loans.

Under the UDAY scheme, the banks and financial institutions are restricted to lend working capital up to 25% of a discom’s revenue in the previous year.

This restriction was part of the UDAY scheme, which was approved in November 2015 by the Union Cabinet.

To clear their dues, the discoms can get a loan under the package against the receivables from State governments but some of them did not have headroom under both the provisions.

Therefore, the power ministry proposed to relax working capital limit norms so that these discoms can avail loans to clear their dues.