The government's Rs 90,000 crore loan relief for state distribution companies announced as part of the economic relief package is likely to prevent 9.4 gigawatt private thermal coal capacity from defaulting, says an analysis by Crisil.
The loans that are to be provided through Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) against receivables of discoms backed by state government guarantees, come at a time when 53 GW coal capacities of independent power producers are facing ramifications of liquidity squeeze at discoms. This excludes the 22 GW of capacity that is already under debt resolution.
"The bulk of these 53 GW capacities can withstand cash flow pressures owing to their liquidity buffer and/or parentage," says Manish Gupta, Senior Director, CRISIL Ratings. "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."
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, Crisil said. Most of these capacities have availed the 3-month moratorium announced by the Reserve Bank of India till May 31, 2020, but sustained disruption in cash flows are making them vulnerable against obligations that will be due in June (accrued interest and regular principal repayments).
"Also, most of these capacities may not have adequate letter of credit limits to defer fuel payments by a quarter," the agency said. The steep decline in demand for electricity especially from high-tariff paying industrial and commercial consumers has further raised the risk of discoms. This has resulted in them either curtailing electricity purchases, or delaying payments based on high-cost power purchase agreements.
"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 the state governments," says Ankit Hakhu, Director, CRISIL Ratings. "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."