Discoms' Outstanding Dues To Power Producers Plunge By Over A Third Since May

The Late Payment Surcharge made it difficult for discoms to access power after defaults.

<div class="paragraphs"><p>Electricity towers. (Source: <a href="">Andrey Metelev</a>/Unsplash)</p></div>
Electricity towers. (Source: Andrey Metelev/Unsplash)

The total outstanding dues of distribution companies to power generation companies have dropped by 39% to Rs 79,531 crore in March from a staggering Rs 1.30 lakh crore last May.

The reduction in the dues, which have already passed their due dates, was largely on account of the Late Payment Surcharge scheme, which got notified in August 2022. Unless the dues were settled, the rules made it difficult for the discoms to access power after the trigger date or in case of payment defaults.

Timely payment of outstanding dues forms the core of the LPS rules, in which the access to power to discoms was regulated in case of non-payment of bills to power suppliers within two-and-half months from the date of bill generation or one month after the due date of payment.

The total outstanding dues, including late payment surcharge, by a distribution licensee may be cleared in a maximum of 48 equated monthly instalments. In case of delay in payment of an instalment, a late payment surcharge will be payable on the entire outstanding dues as on the date of notification of the rules.

The government provided discoms financial assistance in the form of interest-based loans from REC Ltd., Power Finance Corp. and financial institutions to settle the dues.

The total current dues—which have still not passed their respective due dates—as of March 10 were Rs 56,551.3 crore, while the total overdue before the trigger date was 22,492.9 crore, according to the data on the portal of Praapti or payment ratification and analysis in power procurement for bringing transparency in invoicing of generators.

While the reduction in outstanding dues is a near-term positive for generation companies, a sustainable improvement in payments is linked to improving the financial profile of the discoms. ICRA Ltd. said.

The progress in improving the operating efficiencies, realisation of dues from respective state governments and government bodies, and timely pass-through of cost variations to customers through regular tariff revisions are key to improving the financial position of the distribution utilities on a sustained basis, it said in a note.

The financial profile of discoms is expected to improve if they file regular tariff petitions to overcome the cost barriers and reduce the gap between the average cost of supply and the average revenue realised per user.

The ratings agency said the state discoms in 17 states have filed tariff petitions for the next fiscal, indicating a moderate progress. The proposed median tariff hike stands at 5% against the 1.9% median hike approved for the current fiscal.

The cash gap per unit is likely to remain high at over 60 paise per unit for state-owned discoms at the all-India level in the current fiscal and the next fiscal. It is due to the upward pressure on the cost of supply amid the increased use of imported coal and higher tariffs in the short-term—tariffs and rising interest costs towards the loan availed under the LPS scheme.

"In this context, timely issuance of tariff orders with adequate tariff hikes by the state electricity regulators remains important," it said.