Smaller penalty: Cut in late payment fee to save discoms Rs 6,000 crore annually

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October 14, 2020 8:30 AM

The trend of rising dues to power plants continues despite the Union power ministry implementing the letter of credit (LC) mechanism since August 2019 to compel discoms to become more disciplined in meeting payment obligations.

The ministry’s move is seen to cut late payment surcharges (LPS) by about 5 percentage points, and given the high amount of dues, lower surcharges can provide some desperately needed additional liquidity to the discoms.The ministry’s move is seen to cut late payment surcharges (LPS) by about 5 percentage points, and given the high amount of dues, lower surcharges can provide some desperately needed additional liquidity to the discoms.

The Union power ministry’s proposal to reduce late payment surcharge for state-run power distribution companies could potentially provide a relief of about Rs 6,000 crore annually to these distressed entities, given their current level of over-dues to gencos, analysts said.

In the draft Electricity Late Payment Surcharge Rules, 2020, recently released by the ministry, it has proposed to reduce the rate of late payment surcharge from the existing 18%, to a graded payment linked to the “bank rate” which is 500 basis points (bps) more than SBI’s marginal cost of funds-based lending rate.

Discoms’ over-dues — payment default of 45-60 days or more — to power plants increased 52% annually to Rs 1.19 lakh crore at August end.

The ministry’s move is seen to cut late payment surcharges (LPS) by about 5 percentage points, and given the high amount of dues, lower surcharges can provide some desperately needed additional liquidity to the discoms.

To help these stressed entities, the Union government is injecting liquidity through loans worth about Rs 1.20 lakh crore from PFC-REC to clear their dues to power generators. As on September 16, Rs 24,742 crore had been disbursed out of the Rs 70,590 crore sanctioned under this liquidity scheme.

The trend of rising dues to power plants continues despite the Union power ministry implementing the letter of credit (LC) mechanism since August 2019 to compel discoms to become more disciplined in meeting payment obligations.

A senior power ministry official told FE that the LC mechanism has controlled the creation of new dues, but the issue of legacy dues continues to pile up, partly due to the late payment penalties. Also, since some power purchase agreements for renewable energy plants do not have the provision of LCs, the Union government cannot enforce this payment security measure for these projects. During the months of the lockdown in this fiscal, most state-run discoms paid very small portions of their monthly power bills, contributing to the pile-up of over-dues.

According to data available with the power ministry’s ‘Praapti’ portal, private power producers to which discoms owed the most as over-dues at August end were Adani Power (Rs 20,122 crore), Bajaj Lalitpur (Rs 2,957 crore) and GMR Energy (Rs 1,340 crore). NTPC’s invoices to discoms which remain not honoured as on August end totalled Rs 19,270 crore. State-run power generator Rajasthan Rajya Vidyut Utpadan Nigam has dues of Rs 26,808 crore from its own discoms. Delaying payments to generators helps cash-strapped discoms manage their working capital cycles, meet short-term obligations and avoid costly working capital loans.

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