TN, Maharashtra discoms may benefit from Power Ministry bailout scheme

The Union power ministry is once again trying to bail out power distribution companies which have more than ₹1 lakh crore pending to private power generators.

This time, the ministry says it is working on freezing the pending and protecting the discoms from paying the late payment surcharge. The proposed scheme will enable discoms to pay off financial dues in easy instalments. As of date, the discoms overdue are ₹1 lakh crore and the late payment surcharge (LPSC) alone is ₹7,000 crore.

Also read: Discoms owe ₹1.21 lakh crore to power generators in Jan 2022: PRAAPTI

“The inability of the discoms to pay dues to power generators impacts the entire value chain of the power sector. Considering this situation, the Union ministry of power is working on a scheme to mitigate the financial woes of the discoms,” said a senior power ministry official.

As per the PRAAPTI website, which provides details about the money pending to generators by each state, ₹1.08 lakh crore is pending by all states and Union Territories as of today.

Out of this, Tangedco (Tamil Nadu Generation and Distribution Corporation) has the maximum amount of ₹21,628 crore pending. Tangedco is followed by Maharashtra discoms with a total amount of ₹21,549 crore.

Also read: Discoms not immune to insolvency, can be sued under IBC: Power Ministry

A delay in payments by a discom to a generating company adversely affects 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.

The proposed scheme would enable payment of financial dues in easy instalments by the discoms. A one-time relaxation is being considered to be given to all the discoms where the amount outstanding on the date of notification of the scheme will be frozen without the further imposition of a late payment surcharge.

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.

States like Tamil Nadu and Maharashtra which have large outstanding dues will save over ₹4,500 crore each as a result of this measure. The savings by discoms will ultimately benefit consumers by reducing the burden of LPSC, the official said.

A late payment surcharge is levied on the payment outstanding by a discom to a generating company at the base rate. The LPSC is applicable for the period of default at the base rate for the first month of default and increases by 0.5% for every successive month of delay, subject to a maximum of 3% over the base rate of any time.