Power Ministry working on a scheme to liquidate the past dues of Discoms

What is the News?

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.

What is the need for a new scheme for Discoms?

Delay of payments by a Discom to a generating company adversely affects the cash flow of a generating company. As per data available on PRAAPTI portal, as of May 2022, the Discoms over dues (excluding disputed amounts and Late Payment Surcharge (LPSC)) were Rs. One Lakh Crores and the LPSC dues were about 6800 Crores.

The inability of Discoms to pay dues impacts the entire value chain of the power sector. Hence, a new scheme is being formulated.

What is LPSC?

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.

What will be the key provisions of the proposed schemes?

Froze the outstanding dues: A one-time relaxation is being considered to be given to all the Discoms. Thereby the amount outstanding (including principal and LPSC) on the date of notification of the scheme will be frozen without the further imposition of LPSC.

Flexibility to discoms: The proposed scheme enables payment of financial dues in easy instalments (up to 48 instalments) by the Discoms.

Benefits generating company: 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.

What are the benefits of the proposed scheme?

The Discoms will save an amount of Around 20000 Crores 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.

The saving by Discoms will ultimately benefit the electricity consumer by reducing the burden of LPSC in the retail tariff.

Source: The post is based on the article “Power Ministry working on a scheme to liquidate the past dues of Discoms” published in PIB on 24th May 2022.