Punjab Reduces Late Payment Surcharge for DISCOMs to 0.75% Per Month Amid COVID-19

The reduced LPS will be applicable for delayed payments until June 30, 2020


The Punjab State Electricity Regulatory Commission (PSERC) announced that it had reduced the late payment surcharge (LPS) to 0.75% per month.

The late payment surcharge is to be paid by the Punjab State Power Corporation Limited (PSPCL) to the power generating companies (including renewable energy companies such as solar, wind, biomass, small hydro, and co-generation) and Punjab State Transmission Corporation Limited (PSTCL). The reduced rate of LPS will be applicable for payments that were delayed beyond the due date during the period between March 24, 2020, and June 30, 2020. The relief can be claimed under the force majeure provisions given in the respective power purchase agreements (PPAs).

Earlier, the Government of Punjab had issued directions to the Commission to specify a reduced LPS and treat the restrictions imposed by the central and state governments to tackle the coronavirus crisis as an event of force majeure. A force majeure is declared in the event of unforeseeable circumstances that prevent parties from fulfilling a contract.

In its letter to the Commission, the government of Punjab stated that despite the lockdown, the entire workforce of the power sector is working round the clock to keep “all homes and establishments energized.” The state government also noted that due to the unprecedented situation which is likely to continue, the consumers are unable to pay their dues to the state distribution companies (PSPCL),  which makes them unable to pay to the generating and transmission companies.

In April, the state reduced the rate of LPS provisionally to 6% per annum if the due date fell between March 24, 2020, and June 30, 2020. The Commission had also invited comments, suggestions, and objections from stakeholders and the public on the reduced rate of surcharge.

After receiving objections by renewable generators, PSPCL argued that the late payment surcharge rates are generally set on the higher side to discourage delayed payments. It noted that the present situation is a force majeure event, and the DISCOMs are under severe financial distress due to COVID-19 and the subsequent lockdown.

PSPCL also said that the tariffs were quoted by independent power producers under PPAs at a particular time when the applicable interest rates were higher than now. It further added that the PPAs are entered into for 25 years, and the tariffs are fixed in nature. The working capital loan rates considered during computing the tariffs are not revised according to present loan rates. This allows the generators to enjoy the benefits of higher interest rates based on historical working capital loan rates.

Despite the financial shortfall due to COVID-19, PSPCL argued that it was required to make payments towards the maintenance of distribution network, repairs, and salaries to the employees, among other things, to maintain the continued supply of electricity to consumers.

The corporation said that it had released payments towards invoices generated by most of the renewable generators. Entire payments or at least ₹5 million (~$66,481) were made for February 2020, PSPCL claimed. Despite the insufficiency of funds, PSPCL said that it made payments in the first fortnight of April-2020 with a delay of just 7-10 days considering the hardship faced by small generators.

Recently, considering the unprecedented situation, PSPCL in a letter to developers requested them to provide a 10% discount on the power tariff to be billed from July 01, 2020. The letter noted that the ensuing COVID-19 pandemic and the subsequent lockdown affected the collection of PSPCL, which provided constant power supply to health centers, hospitals, and quarantine centers across the state for their smooth functioning.

Earlier, PSPCL introduced an innovative plan calling on all its consumers to make payment in advance towards their estimated electricity bills up to March 2021. The customers could pay to the extent they could through digital modes and earn interest at the rate of 1% per month on the advance payment. The DISCOM had stated that it had received an advance payment of ₹350 million ($4.61 million) in less than a week. This move by PSPCL came as a welcome relief to consumers who were finding it hard to pay the bills during these testing times.  But this also brings to light the fragile nature of the state-run DISCOMs who are finding it hard to pay the generators even when the consumers are paying the electricity bills online.

The country is fighting the COVID-19 pandemic, and the economic impact of the virus is being felt across industries, which also includes the renewable sector. The power sector has been hit hard by the ongoing lockdown, which has been extended to May 03, 2020. You can check the latest updates related to the impact of COVID-19 on the renewable sector here.