To assure uninterrupted power supply in the middle of the country-wide lockdown to contain the coronavirus outbreak, the Union power ministry has relaxed payment norms for electricity distribution companies (discoms). The Central government has asked the state-run power generating companies such as NTPC and Power Grid Corporation of India Ltd (PGCIL) to not curtail supply to the states even if the discoms do not clear payments to them on time.
The lockdown in seen to take a toll on the finances of the state-run discoms which are finding it difficult to continue meter reading exercises and collect payments from consumers. To make matters worse for discoms, their revenues are seen to decrease on account of lower usage by high paying consumers such as the railways, industrial and commercial users. Though the household sector consumes more than a third of electricity supplies, it is cross-subsidised by industrial and commercial users of electricity. Tariffs on domestic consumers is on an average around 40% lower than that for industrial users of power.
The power ministry has also directed the Central Electricity Regulatory Commission to provide a moratorium of three months to discoms to make payments to power plants, and not to levy late payment surcharges. State governments have been requested to issue similar directions to state power regulators. Additionally, the quantum of advance payment that discoms need to furnish as security has been reduced to half till June 30. The Union power ministry had implemented the letter of credit (LC) mechanism since August 2019, which made it mandatory for discoms to issue advance LCs worth the total value of power to be supplied. Now the LCs can be 50% of the worth of electricity.
The relaxation of the payment security norms is seen to hinder the gradual improvement recorded in the discoms’ payment discipline since the implementation of the LC mechanism. Without timely payment, the generating companies are not able to buy coal, which can be procured only on advance payment under Coal India Ltd’s cash and carry policy. Private power producers have sought similar payment relaxations from the government. “With overhang of about Rs 40,000 crore of receivables, these dispensation to distribution utilities without any back to back package for generators is bound to disrupt power supply,” Ashok Kumar Khurana, director general, Association of Power Producers, told FE. “Therefore, similar dispensations — deferred payment system to coal, railway and transmission, linked to disbursal of discom payments— need to be provided on to IPPs,” Khurana added.
Delayed payments impair the generating companies’ ability to service debt and exhaust their working capital. This leads to lower credit ratings and higher interest rates. Overdues — payment default of 60 days or more — from discoms to power producers were at Rs 76,192 crore at January end, according to the government’s Praapti portal.