Ministry of Power Wants Late Payment Surcharge for DISCOMs to be Kept Below 12%

This measure is expected to help reduce the financial burden of the distribution companies

August 25, 2020


The Ministry of Power (MoP) has suggested that the power generation and transmission companies should reduce the late payment surcharge (LPS) up to 12% annually for distribution companies (DISCOMs).

This suggestion would apply to all late payments made under the liquidity infusion program. As reported previously, the government has introduced a stimulus package of ₹900 billion (~$12.03 billion) for the DISCOMs to provide better liquidity as its revenue had dropped drastically amid COVID-19. This one-time liquidity injection was to be infused through the Power Finance Corporation (PFC) and REC Ltd in two equal installments. Central public sector power generation companies were also ordered to give rebates to DISCOMs, which will be passed on to the consumers.

The MoP added that the measure would reduce the financial burden of DISCOMs for all late payments made towards PFC and REC Limited up to June 30, 2020. The ministry’s statement added that DISCOMs had been severely affected due to the high rate of LPS, which extends up to 18% annually in several cases.

REC Limited recently reported that it had sanctioned over ₹300 billion (~$4 billion) to distribution companies in the country as of July 31, 2020. Similarly, PFC approved ₹306.07 billion (~$4.09 billion) as of July 31, 2020, as part of the liquidity package for DISCOMs.

According to the Ministry of Power’s payment ratification and analysis portal (PRAAPTI), the DISCOMs owed renewable generators ₹101.11 billion (~$1.3 billion) in overdue payments (excluding dues under dispute) spread across 544 invoices at the end of June 2020. The outstanding dues to the renewable generators stood at ₹8.4 billion ($111.9 million).

DISCOMs are the weakest link in India’s power sector, and the growing deployment of solar projects depends on the power purchasing ability of these DISCOMs.

Mercom’s webinar on September 1, 2020, will discuss the pressing issues in the solar sector, and the guest speakers from the Ministry of New and Renewable Energy (MNRE) and Solar Energy Corporation of India (SECI) will bring in the policy perspective and strategies to mitigate DISCOM risks. You can register for the webinar here.