Power ministry moots new scheme to let discoms clear dues to gencos

Outstanding dues can be paid in 2 years via monthly installments, surcharge frozen

According to the power ministry's estimate, discoms will save Rs 19,833 crore in 48 months on late payment surcharge.

The power ministry on Wednesday proposed a fresh scheme to facilitate the state-run electricity distribution entities (discoms) to pay up their dues to gencos, which at last count stood at a staggering Rs 1 trillion. The move follows a low level of compliance with its recent directives to the discoms to clear dues and the realisation that it largely resulted from a resource crunch with the discoms.

The scheme will allow payment of financial dues by discoms in up to 48 monthly installments. It also includes a one-time relaxation wherein the amount outstanding (including principal and late payment surcharge) on the date of notification of the scheme will be frozen without the further imposition of the surcharge.

If the scheme works without causing further default by discoms, it will enable gencos, many of which are facing huge liquidity crunch, to continue their operations uninterruptedly.

According to the power ministry’s estimate, discoms will save Rs 19,833 crore in 48 months on late payment surcharge. The dues stand at Rs 6,839 crore at present.

Ashok Khurana, director-general of the Association of Power Producers said the scheme must have a clause that gencos will be insulated from any burden that could arise from future default by discoms under the scheme. There ought to be a provision that in case a state government still fails to ensure payment discipline by the discoms, the Centre can cut its resource transfers to that state to the extent of the default amount, he said.

Tamil Nadu and Maharashtra, which have large outstanding dues, could save over Rs 4,500 crore each as a result of this ministry’s new scheme. Uttar Pradesh will save around Rs 2,500 crore, while Andhra Pradesh, Jammu and Kashmir, Rajasthan and Telangana will save in the range of Rs 1,100 crore to Rs 1,700 crore.

The savings by discoms will ultimately benefit the electricity consumer, the ministry added.

A late payment surcharge is levied on the payment outstanding by a discom to a generating company at the base rate (pegged to SBI’s marginal cost of lending rate).

The LPSC is applicable for the period of default at the base rate for the first month of default and increased by 0.5% for every successive month of delay, subject to a maximum of 3% over the base rate at any time.

The inability of discoms to pay dues impacts the entire value chain of the power sector. The fresh rise in discoms’ overdue to gencos is despite the Rs 1.18 trillion liquidity infusion scheme implemented since 2020 through PFC-REC, to enable them to clear the dues to gencos and coal companies. The scheme has also been linked to operational reforms by these entities, but the compliance with these norms has been less than satisfactory.

Delays in payments by discoms to gencos adversely affect the cash flow of the generating firm, which needs to make provisions for input supplies like coal, and for keeping adequate working capital for the day-to-day operation of power plants.

Some state governments, which still don’t pay power producers on time and delay release of subsidies to discoms, are to be blamed for the problems faced by the sector, Union power secretary Alok Kumar told FE recently.“If a discom fails to pay the gencos, it won’t get power. We can’t allow the sickness to spread.”

Six states – Tamil Nadu, Maharashtra, Rajasthan, Uttar Pradesh, Andhra Pradesh and Telangana – account for 60% of over-dues to gencos. Many states often fail to pay subsidies on time to discoms. Also, many states delay payment of subsidies to discoms.

Several steps are being taken to bolster the financial and operational efficiencies of discoms. These include a liquidity infusion scheme, extra borrowings of 0.5% G-SDP linked to power-sector reforms, stricter norms for lending by PFC-REC, a revamped distribution sector scheme and a Letter of Credit for payment security under power purchase agreements.

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