Centre to provide relief to power distribution companies as their dues mount to Rs 1 lakh crore

Concerned over dues worth Rs 1,00,018 Cr of the power distribution companies, the Centre on Wednesday said it is working on a scheme to mitigate their financial woes, according to a release.

New Delhi: According to officials, the inability of the distribution companies to pay their dues to the power generation companies impacts the entire value chain of the power sector.

Also, such delay 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, said officials.

As per data available on the PRAAPTI portal, as of May 18, 2022, the distribution companies over dues (excluding disputed amounts and Late Payment Surcharge (LPSC)) were Rs. 1,00,018 Cr. The LPSC dues were Rs. 6,839 Cr.

“The proposed scheme enables payment of financial dues in easy installments by the distribution companies. A one-time relaxation is being considered to be given to all the distribution companies wherein the outstanding amount (including principal and LPSC) on the date of notification of the scheme will be frozen without the further imposition of LPSC,” said an official.

Further, the distribution companies will be given the flexibility to pay the outstanding in up to 48 installments.

The move will give distribution companies time to shore up their finances while the generating company will benefit from assured monthly payments, which otherwise were not coming to them.

However, in case of delay in payment of an instalment by a distribution company, the Late Payment Surcharge shall be payable on the entire outstanding dues, which otherwise was exempted, said officials.

As a result of the proposed scheme, the distribution companies will save Rs. 19,833 Cr on LPSC over 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, UT Jammu and Kashmir, Rajasthan and Telangana will save in the range of Rs. 1,100 Cr to Rs. 1,700 Cr.

The savings by distribution companies 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 more important for the generating companies than the amount foregone on LPSC.

Further, suitable measures are being put in place to ensure that distribution companies pay their dues to the generating companies on a regular basis, otherwise, their supplies will be reduced.

Late Payment Surcharge (LPSC) is levied on the payment outstanding by a distribution company 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 increases by 0.5 per cent for every successive month of delay, subject to a maximum of 3 per cent over the base rate at any time.