Rs 90,000 cr liquidity infusion breather for power generating companies: CRISIL

The government's Rs 90,000 crore liquidity infusion into cash-starved power distribution firms is a breather for generating companies and the move will help 9.4 GW private thermal coal capacities from defaulting post moratorium, CRISIL Ratings said on Wednesday.

The move would help clear a chunk of discoms' obligations to generation companies (gencos), it said in a statement.

The loans are to be provided through Power Finance Corporation (PFC) and REC against receivables of discoms backed by state government guarantees.

According to the statement, the relief comes at a time when 53 GW coal-based power generation capacities of independent producers – excluding 22 GW under debt resolution – are facing the ramifications of the liquidity squeeze at distribution companies (discoms).

There has been a big fall in electricity demand from high-tariff paying industrial and commercial consumers, and collection efficiencies of discoms have also dropped because of the lockdown, it said.

This has raised the risk of discoms either curtailing electricity purchases, or delaying payments based on high-cost power purchase agreements, it added.

“The bulk of these 53 GW capacities can withstand cash flow pressures owing to their liquidity buffer and/or parentage. But the risk would be higher for 9.4 GW of capacities (with debt of Rs 49,000 crore) because their liquidity cushion is so low, an additional delay of even one month can cause them to default on financial obligations,” Manish Gupta, Senior Director, CRISIL Ratings said.

The at-risk capacities have either inefficient power purchase contract structures (payments are linked to offtake for 5 GW capacities) or high generation cost (for 4.4 GW projects), making them disproportionately susceptible to payment delays by discoms, the statement said.

While most of these capacities have availed of the 3-month moratorium announced by the Reserve Bank of India till May 31, 2020, sustained disruption in cash flows will make them vulnerable versus obligations in June (accrued interest and regular principal repayments), it added.

Also, most of these capacities may not have adequate letter of credit limits to defer fuel payments by a quarter, it said.

The Rs 90,000 crore liquidity injection into discoms, therefore, comes at an opportune time for these generation companies, and can potentially alleviate the interim risks, it stated.

“How quickly the money is injected will be critical as these capacities have limited ability to withstand delays. This includes timely formulation of the scheme and approvals of guarantees by state governments. Moreover, as the loans would be made available to the discoms, the extent of liquidity pass-through to generating companies will be crucial to reduce vulnerability,” Ankit Hakhu, Director, CRISIL Ratings said.

CRISIL’s credit outlook on generating companies will remain sensitive to these developments, the statement added.

Last week, Finance Minister Nirmala Sitharaman said the government will provide Rs 90,000 crore for discoms as part of the strategy to bring the country's battered economy on track. PFC and REC will infuse the liquidity.