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Discom dues liquidation Scheme ‘to assist realise Rs 9,000 cr receivables’ in RE Sector

CRISIL Ratings reported that the Ministry of Power’s plan to liquidate overdues distribution companies (discoms), owe generation companies (gencos), can allow for the release of past receivables of renewable energy (RE) of Rs. 9,000 crore in the next two fiscals.
CRISIL Ratings analysis reveals that the scheme could reduce receivables time by leading RE gencos from the current 180 day period by up to 40-50 days and increase equity returns by up to 1 percent.
The RE sector has faced many risks, including payment stretch. Leading RE gencos reported receivables for March 2022 of approximately six months. This is similar to March 2019 levels.
Due to delays in payments from select state counterparts, such as Maharashtra (Rajasthan, Madhya Pradesh), Telangana, Tamil Nadu, Telangana and Madhya Pradesh), the receivables have been stretched. These are a large proportion of the offtake mix RE gencos with receivables that range from 8-14 months in the last three fiscals.
Problem is compounded due to the large variation in payment profiles and unpredictable payments of discoms. The receivables cycle for the Telangana discom jumped to 400 days on March 31, 2022 from 250 days on March 31, 2019, while it soared to 300 days for the Maharashtra discom from 70 days.

These stretch can result in cash-flow mismatches at RE gencos. They rely on liquidity buffers to service their debt and working capital for that. This forces them to look for additional working capital, which can lower equity returns.
The proposed scheme will see late payment surcharges and dues as of the June 3rd 2022 cut-off date converted into monthly instalments which discoms will pay over 12 to 48 months. This would result in immediate liquidity gains for RE Gencos and could lead to improved payment profiles.
“The Rs. 9000 crore of liquidated debt can be used to finance equity investments in 24 gigawatts under-implementation schemes over the next two financials. “Our calculations assume that financially strong discoms (such as Maharashtra and Gujarat) would have better payment periods than those expected to pay with an Average Delay of 3-5 Months for RE projects,” Manish Gopta, Senior Director at CRISIL Ratings said in the report.
Nearly half of the improvements in receivables cycle for RE projects is due to this dues liquidation program.
CRISIL has also found that RE gencos have benefited from a higher share of central counterparties in their operational portfolio (up to 40% last fiscal, from less than 25% in fiscal 2019).

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