CERC Asked to Reduce Late Payment Surcharge as Cash Flow Dries Up Amid COVID-19 Outbreak

The late payment surcharge will be applicable for delayed payments till June 30, 2020

April 1, 2020


The Ministry of Power (MoP) has disclosed that it has received representations from power distribution companies and state governments requesting a waiver of late payment surcharge (LPS) given the force majeure situation arising from severe restrictions placed on the movement of people and establishments.

The government of India, in an unprecedented move, announced a complete lockdown of the country on March 24, 2020, to arrest the outbreak of Coronavirus.

The Ministry has been informed that the consumers of power distribution companies are unable to pay their dues until the situation gets better. This is going to affect the liquidity position of the DISCOMs, thereby reducing their ability to pay timely payments to power generation and transmission companies.

The Ministry of Power has acknowledged the gravity of the situation and noted that extremely low receipts due to non-payment or delayed payments by consumers, the cash flow in the system might be impeded. To mitigate the problem, the Ministry of Power feels that some relief must be granted to generation companies and transmission licensees.

The Ministry has directed the Central Public Sector Undertaking (CPSU) generating companies and transmission licensees not to use coercive measures for recovering dues and continue the transmission of electricity since it is an essential service. The Reserve Bank of India has also provided a three-month moratorium on repayments of outstanding loans and interest on working capital.

The Ministry has issued some directions to the Central Electricity Regulatory Commission (CERC) in the public interest.

  • The Commission may specify a reduced rate of LPS, which is delayed beyond a period of 45 days (from the date of the presentation of the bill) from March 24, 2020, to June 30, 2020, to generating companies and licensees. The LPS will be applicable for delayed payments until June 30, 2020, and the surcharge should not be more than the cost the generating companies or transmission licensees would have to bear because of the delayed payment
  • For generating companies and transmission licensees whose tariffs were determined by the central Commission, DISCOMs may claim relief from its obligations regarding the rate at which the late payment surcharge is to be paid, in line with the force majeure provisions

Recently, the Ministry of Power issued a directive stating that the power may be scheduled even if the payment security mechanism is reduced by 50% against the initial contract. The order will be valid until June 30, 2020. In this context, the Ministry issued a circular regarding the opening and maintaining of adequate Letter of Credit as payment security mechanism under the power purchase agreements by the distribution licensees.

The Reserve Bank of India (RBI) responding to the unprecedented situation due to the outbreak of Coronavirus announced that all commercial banks, financial institutions, and Non-Banking Financial Companies (NBFCs) can now allow a moratorium of three months on payment of the installments for all term loans, which are outstanding as on March 1, 2020. Also, if working capital facilities have been approved in the form of cash credit or overdraft, then lending institutions can allow deferment of three months on payment of interest of all facilities outstanding as on March 1, 2020.

Coronavirus pandemic is proving to be the solar industry’s biggest challenge this year, and the repercussions are being felt across industries all over the globe. Track the latest developments and initiatives taken by the government to fight the economic repercussions of the pandemic in the renewable industry here.