Debt moratorium for discoms to hit India's producers

Power producers are still obligated to generate enough power for the country.

India’s power producers could take the burden as the Ministry of Power issued the Central Electricity Regulatory Commission (CERC) a three-month debt moratorium to distribution companies (discoms) for debts owed to power producers and transmission firms, according to a Fitch Solutions report.

The moratorium was put in place in light of the lockdowns in the country. It will also waive penalties for late payment, and payment security requirements that were imposed last year on discoms will now be halved until 30 June.

The ministry expects that power consumers will be unable to pay their dues due to the lockdown, which will pose liquidity problems for discoms.

Despite the moratorium, power producers are still obligated to supply enough power generation to the country, as well as pay for generation costs, fuel supplies and loans to their lenders.

The moratorium could also exacerbate the financial distress in the whole sector. As of January, it is estimated that discoms already owed about $11b to power producers, and many power plants are running at low plant load factors because of grid bottlenecks and feedstock supply shortages, which meant losses for some power producers.

Further, continued reliance on imported coal, coupled with a weakened rupee, has increased generation costs for power producers. This has resulted in a rise of non-performing assets, of which the generation sector holds an estimated $40-60b.