Discom waiver: Interest burden on power producers seen rising to Rs 8,500 crore

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Published: March 31, 2020 3:30:12 AM

As FE reported earlier, private power producers have sought similar payment relaxations — deferred payment system to coal, railway and transmission — from the government.

To assure uninterrupted power supply during lockdown, the Union power ministry has relaxed payment norms for discoms.To assure uninterrupted power supply during lockdown, the Union power ministry has relaxed payment norms for discoms.

As a result of higher short-term loans which power generators (gencos) are expected to take to make up for the cash shortfall stemming from the government-sanctioned payment delays by state-run electricity distribution companies (discoms), incremental interest cost on the utilities’ working capital is seen to be Rs 7,500-8,500 crore.

According to a recent report by ICICI Securities, the higher interest burden “will be partially/fully passed on to the discoms”. The research firm noted that CPSU power gencos such as NTPC will be able to recover higher expenses owing to its “cost plus” tariff structure, but the retrieval process for private power plants would depend on the provisions of their respective power purchase agreements on a case-to case basis.

Delayed payments impair the ability of generating companies to service debt and exhaust their working capital. This leads to lower credit ratings and higher interest rates. Overdues — payment default of 60 days or more — from discoms to power producers were at Rs 76,192 crore at January-end, according to the government’s Praapti portal.

“With Covid-19 lockdown accentuating delays in payments, the availability of adequate liquidity buffer in the form of debt service reserve and undrawn working capital limits remains important from a credit perspective,” Icra Ratings noted.

To assure uninterrupted power supply during lockdown, the Union power ministry has relaxed payment norms for discoms. The Centre government has asked the state-run power generating companies such as NTPC and Power Grid Corporation of India to not curtail supply to the states even if the discoms do not clear payments to them on time.

As FE reported earlier, private power producers have sought similar payment relaxations — deferred payment system to coal, railway and transmission — from the government.

Invoking the Section 107 of the Electricity Act, which empowers the central government to issue “directions in matters of policy involving public interest”, the power ministry has also directed the Central Electricity Regulatory Commission to provide a moratorium of three months to discoms to make payments to power plants, and reduce the penalty rate for late payment surcharges.

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