PFC eyes green power as revenue hit looms

ALTERNATE CURRENT Centre’s move to let states issue bonds to cover their exposure to discoms will hit asset-book also

NEW DELHI: The union government’s plan to bail out lossmaking and debt-laden state discoms by converting some of their debt into bonds may impact both the asset-books and interest income of Power Finance Corporation and Rural Electricity Corporation (REC).

State electricity boards owe more than `3.5 lakh crore to banks and lending institutions. Upto 75% of this (about `2.6 lakh crore) could be converted into bonds, to be issued by the respective state governments, while the remaining would be deducted from their fund allocations. The bonds will fetch an interest of 8%.

Apart from this, discoms have losses to the tune of `2.5 lakh crore.

According to officials, 60% of REC’s exposure is linked to discoms, while the figure is around 40% for PFC. The recast plan will reduce their asset sizes. “Even if they (PFC and REC) buy the bonds just to maintain their asset size, they will lose out on the interest cost as the normal rate of lending is 4-5% higher than 8%,” a PFC official told HT. Typically, PFC lends at interest rates of 10.5% to 13.5%.

Lower earnings would mean it will have to look for newer avenues of investment, as investment options in conventional power sector are drying up, according to a PFC official.

Enter renewable energy. With the Narendra Modi government’s push on renewable energy and falling equipment costs bringing down tariffs to historic lows, investing in the sector has become lucrative.

Any investment in green energy, however, will depend on the contours of the recast package that is being finalised, the official said.

Sources say that renewable energy is also attractive because it offers assured returns for up to 25 years, while gestation periods are much smaller than thermal projects.

However, Shikhin Mehrotra, manager-consulting at Mercados Energy Markets India, who tracks the solar energy sector, was sceptical as to whether PFC’s loans would find many takers. “Typically companies are raising money from foreign countries or NBFCs (nonbanking financial companies) at rates much lower than what PFC offers,” he said.