Power Ministry Plans Another Scheme To Solve The Discom Puzzle

The Ministry of Power has informed that it’s working on a scheme that will help mitigate the financial woes of the Distribution Companies (Discoms) which are unable to pay their dues. This is crucial as the inability of Discoms to pay dues impacts the entire value chain of the power sector. Even the relatively young renewable sector has not been unscathed, as, besides payment issues, rooftop solar has struggled in India mainly because of the reluctance of discoms to support it due to perceived impact on their shaky financials.

Delay of payments by a Discom to a power generating companies adversely affects the cash flow of a generating company, which need to make provisions for input supplies as coal, and for keeping adequate working capital for day-to-day operation of the power plant. As per data available on PRAAPTI portal, the Discoms over dues were Rs. 100,018 crore and the late payment surcharge (LPSC) dues were Rs. 6,839 crore. This did not include disputed amounts.

According to the Power Ministry, 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 on the date of notification of the scheme will be frozen without further imposition of LPSC.

Also, the Discoms will be given flexibility to pay the outstanding amount in upto 48 instalments. The liquidation of outstanding dues in deferred manner without imposition of LPSC will give Discoms time to shore up their finances.

The Power Ministry further informs that generating companies 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 was exempted.

As a result of the proposed scheme, the Ministry holds that Discoms will save an amount of Rs. 19,833 crore on LPSC in the next 12 to 48 months. Tamil Nadu and Maharashtra will save over Rs. 4,500 crore, UP Rs. 2,500 crore and states like Andhra Pradesh, Jammu & Kashmir, Rajasthan and Telangana will save in the range of Rs. 1,100 crore to Rs. 1,700 crore.

Also, the saving by Discoms will ultimately benefit the electricity consumer by reducing the burden of LPSC in the retail tariff. The measure is expected to provide timely liquidation of arrears which is very much important to the Generating Companies than the amount foregone on LPSC.

While the scheme promises much, it remains to be seen how the states receive it, as we have repeatedly seen with previous efforts to mitigate and correct issues at loss making discoms. The issue is heavily politicised, with many states seeing little benefit in fixing institutions they can bend to their short term requirements otherwise. Readers will recall the heavy resistance to the Electricity (amendment) bill 2021, which sought to bring a measure of accountability and system of rewards and penalties to discipline discoms. The bill continues to hang in limb, despite a significant dilution of its original provisions by the central government.