Explained: Why the govt had to inject money into the power sector

Part of the package announced by Finance Minister Nirmala Sitharaman Wednesday (May 13) was a Rs 90,000-crore liquidity injection into power distribution companies (or discoms). The move is aimed at helping the discoms clear their dues with gencos (or electricity generation companies), who in turn can clear their outstanding dues with suppliers, such as coal miners, easing some of the working capital woes of Coal India Ltd and contract miners.

This is subject to the condition that the Centre will act as guarantor for loans given by the state-owned power finance companies such as PFC and REC Ltd to the discoms.

Why was this needed
The primary trigger is the poor financial condition and revenue collection abilities of most state discoms. This is despite several interventions, including a scheme called UDAY that was launched in 2015 to fix the problems of a sector where the upstream side (electricity generation) was drawing investments even as the downstream (distribution) side was leaking like a sieve.

Indian Express
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