Settle at 6% Or 12%? The Curious Case of 4 Cases Of Tangedco Delays

4 recent orders passed at the Tamil Nadu State Electricity Regulatory Commission (TNERC) drew our attention recently. All four involved wind energy operators with the  same complain against the state disco, TANGEDCO. In each case, the discom had delayed payments to the generators, following which, they had approached the state commission for redressal.

In all four cases, the TNERC ruled in favour of the petitioners, and asked the respondent (TANGEDCO) to settle the dues, as per the sales agreement. The agreement in each case had a provision for charging interest at the rate of 1 percent per month for delays beyond 30 days. In each of the cases, one of the standard offers from TANGEDCO    appears to have been to offer settlement at 6 percent per annum, rather than the 12 percent per annum as mandated in the agreement.  In two of the cases, the petitioner accepted the said terms, and duly got the money. In two cases, the petitioners either refused, or did not respond to the Tangedco offer. Which is where it gets interesting. In both of these cases, the TNERC, forced to step in, has decided to go by the letter of the law, and ignore TANGEDCO protestations of financial problems.

Thus, the firms that refused to, or ignored Tangedco’s  offer actually got the full 12 percent per annum late payment interest. Or will, in this case.

As far as we can make out, there is no other major difference in these cases, save the quantum of amounts involved. Considering the 50 percent difference in late payment interest, one has to wonder if settling with TANGEDCO was a really good idea in retrospect for the firms that did settle, as it possible sets a precedent for future payment delays too for them. The firms that held out, if thy do get the payments finally as per TNERC orders, will consider it the rewards of patience. And allowing the law to take its course. Of course, in their defense, the firms that accepted the offer will point to the 7 years that it took to get a resolution, a time period that will test anyone. On the other hand, perhaps the other firms decided if they could wait seven years, they can wait a little longer too.

For Tangedco of course, a 6 percent delayed payment is way better than the cost of borrowing funds, and to that extent, this funding from customers is welcome. A moral hazard, anyone?

For the record, the firms that settled at 6 percent were Devi Sea Foods Limited and Om Sakthi Wind Power Private Limited.

The ones that held out were Krishna Kumar Orthopaedic Hospital and Institute of Orthopaedics Pvt. Ltd and Ms Texonic Instruments Limited  respectively.