May 25: The inability of Discoms to pay dues impacts the entire value chain of the power sector. Considering this situation, the Ministry of Power is working on a scheme to mitigate the financial woes of the Distribution Companies (Discoms) that are unable to pay their dues.
Delay of payments by a Discom to a generating company adversely affects the cash flow of a generating company, which needs to make provisions for input supplies such as coal, and for keeping adequate working capital for the day-to-day operation of the power plant, etc. As per data available on PRAAPTI portal, as of 18th May 2022, the Discoms over dues (excluding disputed amounts and Late Payment Surcharge (LPSC)) were Rs. 1,00,018 Cr and the LPSC dues were Rs. 6,839 Cr.
The proposed scheme enables payment of financial dues in easy instalments by the Discoms. A one-time relaxation is being considered to be given to all the Discoms wherein the amount outstanding (includes principal and LPSC) on the date of notification of the scheme will be frozen without the further imposition of LPSC. The Discoms will be given the flexibility to pay the outstanding amount in up to 48 instalments. The liquidation of outstanding dues in a deferred manner without the imposition of LPSC will give Discoms time to shore up their finances. At the same time, the generating company will benefit from assured monthly payments which otherwise were not forthcoming to them. However, in case of delay in payment of an instalment by a Discom, the Late Payment Surcharge shall be payable on the entire outstanding dues which otherwise were exempted.
As a result of the proposed scheme, the Discoms will save an amount of Rs. 19,833 Cr on LPSC in the next 12 to 48 months. States like Tamil Nadu and Maharashtra which have large outstanding dues will save over Rs. 4,500 Cr each as a result of this measure. Uttar Pradesh will save around Rs. 2,500 Cr while States like Andhra Pradesh, Jammu & Kashmir, Rajasthan and Telangana will save in the range of Rs. 1,100 Cr to Rs. 1,700 Cr. The saving by Discoms will ultimately benefit the electricity consumption by reducing the burden of LPSC in the retail tariff. The measure is expected to provide timely liquidation of arrears which is very much more important to the Generating Companies than the amount foregone on LPSC. At the same time, suitable measures are being put in place to ensure that Discoms pay their dues to Gencos on a regular basis, otherwise, supply by Gencos will be reduced.
Late Payment Surcharge (LPSC) 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 (MCLR)). 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.
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