Discom Loans: Energy Department wants RBI to order banks to follow strict standards

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The new nightclub rescue plan is largely based on private investment in distribution infrastructure.

With loss-making electricity distribution companies (discoms) a burden on public finances as they need recurring bailouts, the EU government spares no effort when it comes to ensuring that the last plan to save these entities does not falter. their financial indiscipline and operational laxity.

The Union Energy Ministry is considering asking the Reserve Bank of India (RBI) to order public sector banks (PSBs) to follow strict prudential standards for lending to discoms, the spokesperson said on Friday. Secretary of Energy, Alok Kumar. Prudential standards for PFC-RECs – the main sources of lending for discoms – have already been tightened, and public sector banks will be forced to follow similar standards.

According to sources, nightclub loans outstanding stood at Rs 5 lakh crore at the end of FY20, and more than a fifth of this is in the form of state government loans.

Union Energy Minister RK Singh previously told FE that “under the revised standards, discoms will only be able to get new loans from PFC-REC if they chart a loss reduction path. approved by the governments of their respective states as well as by the Union. ministry of power ”.

There are also plans to include representatives of PFC-REC on the boards of those dcoms to which the exposure of sector lenders is important, Kumar said at a workshop on the latest disco program hosted by India Energy. Forum.

Funding under the latest Rs 3 lakh-crore stimulus program for nightclubs approved by Cabinet in June is dependent on their commitment to undertake the creation of infrastructure such as separation of power supplies and replacement of old lines. The program also requires the governments of the states concerned to agree to pay the subsidies on time, clarify government contributions and national electricity regulators to implement annual tariff reviews, and do not create “regulatory assets” or charges. Recoverable interruption expenses that regulators recognize as pass-through costs, but are not immediately incorporated into tariffs.

The new nightclub rescue plan is largely based on private investment in distribution infrastructure. For the program to be implemented in the five years leading up to FY26, the Center will disburse Rs 97,631 crore, and the balance will need to be operated by the discoms through various means, including loans, but ideally through public-private partnerships.

The latest attempt to revive deficit and indebted discoms through the UDAY program launched in November 2015 fell short after showing an initial promise to instill discipline in discom operations. The UDAY program aimed to reduce the overall technical and commercial (AT&C) losses of discoms to 15% by the end of fiscal 2019, but this has not been the case. AT&C losses now stand at 21% and the latest program aims to bring them down to 12-15% by FY25.

Discom losses increased from Rs 48,619 crore in FY16 to Rs 61,360 crore in FY19. Energy Minister RK Singh said losses were down 38% year on year to around Rs 38,000 crore in FY20. With disco revenues declining over the year. FY21, due to disruptions amid lockdowns to contain the coronavirus, disco losses have reportedly reached Rs 90,000 crore by some agencies. However, the Department of Energy called these estimates “grossly inflated”.

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