Tamil Nadu Electricity Regulatory Commission (TNERC), in a recent order, directed Tamil Nadu Generation and Distribution Corporation (TANGEDCO) to pay a wind developer the interest on the delayed payments for power procured.

Bhabani Pigments, a wind energy developer in its petition to the Commission, claimed that TANGEDCO had delayed payments over time for the power procured from its wind projects and had not paid the interest on those delayed payments.

Background

Bhabani Pigments had entered into a power purchase agreement (PPA) under a preferential tariff regime with TANGEDCO to sell power generated from its wind projects in V.Kallipalayam village in Coimbatore.

Bhabani Pigments had raised invoices for power supplied monthly as per the terms of the PPA. However, Bhabani Pigments claimed TANGEDCO inordinately delayed the payment.

In this circumstance, Bhabani Pigments had filed a petition with the Commission in 2014 to receive interest at 12% per annum on delayed payments from May 2010 to April 2013. The Commission in 2016 ruled that Bhabani Pigments was eligible for 6% interest, settling the matter.

After the ruling, Bhabani Pigments received only partial payments against invoices for the period up to June 2020, after which no payments had been received to date. However, even these partial payments were made after a substantial delay, and no payment of interest had been received on these delayed payments.

Bhabani Pigments, in their petition, claimed that the substantial delays in making payments had caused severe difficulties in meeting the financial obligations towards banks and financial institutions. The interest on delayed payments is much lower than the payments it has to make to the banks under the term loans. The delay in payments by TANGEDCO has also hampered the petitioner’s capacity to carry on its business.

Bhabani Pigments had requested TNERC to pass an order directing TANGEDCO to pay ₹9,062,345 (~$118,555), the interest due amount payable up to November 30, 2021, for the wind power energy sold.

TANGEDCO claimed its revenue from selling power is around ₹32 billion (~$418.64 million), and tariff subsidy from Tamil Nadu Government is around ₹6 billion (~$78.49 million) per month. The monthly fund outflow towards the revenue expenditure is ₹51.5 billion (~$673.75 million), an average shortfall of about ₹13.6 billion (~$177.92 million) per month.

In the above circumstances, TANDEGCO claimed releasing huge payments to wind generators is difficult. However, efforts are being taken to release payments for one or two months. Moreover, TANDEGCO argued that paying or adjusting interest due every month will affect the cash inflow, and payment of surcharge before payment of the dues will not be correct under accounting principles.

TANGEDCO said that all the pending energy bills and bills on late payments will be cleared once it receives financial assistance. TANGEDCO said it had requested assistance to the tune of ₹320 billion (~$4.18 million) through Tamil Nadu Government.

TANGEDCO argued that since it is a corporate company wholly owned by the Tamil Nadu Government, any losses will be transferred through future tariffs and subsequently be passed on to the end-consumers, which affects the public interest.

Commission Analysis

The Commission observed that except for financial difficulty, no other reasons were given by TANGEDCO to dispute the claim raised by Bhabani Pigments. The commission noted that financial difficulty could not be allowed as a valid ground to avoid principal and interest dues payment. Hence, TANGEDCO is liable to pay 1% interest per month on delayed payment beyond 30 days on the unpaid balance amount.

The Commission also noted that the petition was filed on December 24, 2021. All claims in the present that become due before December 25, 2018, are barred by limitation. Thus, out of the total claim of ₹9,062,345, a claim of ₹353,853 stands excluded.

The Commission directed TANGEDCO to verify the claim made by Bhabani Pigments to the extent of ₹8,708,492 and pay the amount within 30 days.

According to the data released by the Ministry of Power, distribution companies in Tamil Nadu owed renewable generators ₹206.6 billion (~$2.70 billion) in overdue payments at the end of February 2022.

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