Over ₹300 Billion Released by REC Under DISCOMs’ Liquidity Package

REC also announced it would raise ₹850 billion in funds over the next year


REC Limited, formerly called the Rural Electrification Corporation Limited, reported that it had sanctioned over ₹300 billion (~$4 billion) to distribution companies (DISCOMs) in the country as of July 31, 2020.

The sanctions are part of the central government’s stimulus package to help the Indian economy recover from the coronavirus crisis. The government had announced its COVID-19 relief package comprising a liquidity injection to state DISCOMs in the form of state government-guaranteed loans through REC Limited and the Power Finance Corporation (PFC).

As of the end of May 2020, DISCOMs owed renewable generators ₹97.25 billion (~$1.31 billion) in overdue payments (excluding dues under dispute) spread across 538 invoices, according to data from the Ministry of Power’s (MoP) payment ratification and analysis portal.

Finance Minister Nirmala Sitaraman had previously announced that DISCOMs would receive ₹900 billion (~$12.03 billion) to help them clear their dues during the ongoing crisis. The liquidity package is to be infused through PFC and REC in two equal installments. Central public sector power generation companies have also been ordered to give rebates to DISCOMs, which will, in turn, be passed on to the final consumers (industrial).

Other highlights from REC’s unaudited financial results for the quarter ended June 30, 2020, included its plan to raise ₹850 billion (~$11.4 billion) over the next year through the issue of secured or unsecured non-convertible bonds and debentures through private placement.

Earlier, REC said it approved ₹5.24 billion (~$69.6 million) in loans to renewables accounting to 4% of the total loans extended during the quarter. This was down from ₹15.87 billion (~$210.9 million), or 7% of overall loans disbursed in Q4 2019.

Mercom has previously written about how DISCOMS have been weighing down the entire sector with their inability to pay power generators on time, manage their losses, and iron out other inefficiencies. While the Ministry of Finance has said that the government is working on a new tariff policy that addresses limiting cross-subsidies, penalizing DISCOMs for unnecessary power cuts, preventing them from passing their losses to the consumers, among other issues, it must also focus on formulating a long term plan to address issues across the board.