May 2022

The Ministry of Power has recently announced that it is working on a scheme to liquidate the past dues of power distribution companies. The ministry is considering extending a one-time relaxation to discoms, whereby the outstanding amount, including the principal and late payment surcharge (LPS), will be frozen on the date of notification of the scheme without further imposition of LPS. The discoms will be given flexibility to pay the outstanding amount in up to 48 instalments. However, in case of a delay in the payment of an instalment by a discom, the LPS that would otherwise be waived is expected to be imposed on the entire outstanding dues.

As per data available on the PRAAPTI portal, as of May 18, 2022, the discom overdues (excluding disputed amounts and LPS) were over Rs 1 trillion and the LPS dues were around Rs 68 billion. The proposed scheme is expected to save the discoms an amount of Rs 198.33 billion on LPS in the next 12-48 months. States such as Tamil Nadu and Maharashtra, which have large outstanding dues, are expected save over Rs 45 billion each, while Andhra Pradesh, Jammu & Kashmir, Rajasthan, and Telangana are likely to save in the range of Rs 11 billion-Rs 17 billion each.

The proposed scheme is expected to provide greater visibility of cashflow in the near term, and liquidation of outstanding dues in a deferred manner without the imposition of LPS. It will give discoms time to shore up their finances. At the same time, the generating company will benefit from assured monthly payments, which were not forthcoming to them previously.

While the final contours of the scheme are awaited, industry experts are skeptical about the success of the scheme over the medium to long term as the larger structural and fundamental issues of the distribution segment pertaining to inadequate tariff revisions, and delays in pass-through of costs to end-users as well as subsidy payment by the state governments, remain unaddressed.

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