The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, has approved a one-time relaxation to Power Finance Corp. (PFC) Ltd and REC Ltd for extending loans to distribution companies above limits of the working capital cap of 25 per cent of last year’s revenues under Ujwal DISCOM Assurance Yojana (UDAY).
This one-time relaxation would help in providing liquidity to the power sector and ensure payments by state governments to distribution companies.
The outbreak of the COVID-19 pandemic and the consequent nationwide lockdown has exacerbated the liquidity problems for the power sector. Revenues of power distribution companies have declined substantially as people are unable to pay for the electricity consumed while power supply, an essential service, has been maintained. Energy consumption has also decreased substantially.
The liquidity of the power sector is not expected to improve in the short-term, as economic activity and power demand will take some time to revive. There is, thus, an immediate need to infuse liquidity in the power sector for the continuation of power supply.