Covid-19 Impact: CERC Lowers Late Payment Charges, Offers Other Reliefs For Discoms

India’s power regulator has relaxed tariff regulations between generators and distribution companies, offering respite to the debt-ridden power distribution companies at a time when the nation faces a lockdown over the novel coronavirus outbreak.

If discoms delay paying power generators’ bills that are presented between March 24 and June 30, 2020, beyond 45 days, then the late payment surcharge in such cases would be 1 percent instead of 1.5 percent, according to an order posted on to the Central Electricity Regulatory Commission’s website today.

The CERC Order Also States That…

• The Reserve Bank of India has allowed lending institutions and banks to grant a three-month moratorium to discoms on repayment for all term loans. It also said the interest shall continue to accrue on outstanding portion of the loan amount in the moratorium period.
• Power producers can opt for moratorium on payment of installments of term loan and defer the payment of interest over working capital facilities from March 1 to May 31 but the interest accrued won’t be waived.
• Power producers must incur the cost of working capital facilities even during the deferment period.
• The generators must discharge their debt service obligations and arrange for working capital for day-to-day operations of their generating stations and transmission assets.
• Beneficiaries of the generating stations and long-term customers of the inter-state transmission systems will continue to avail rebates under existing regulations.

The power sector is in crisis on the back of high discom dues and low demand. Discoms, according to data available on the Praapti portal, owe as much as Rs 80,648 crore to generators—at levels in August 2019 when the letter of credit payment mechanism was introduced to help curb payment delays by discoms. Yet, the number of pending invoices has risen to a record 12,332.

“As the nation grapples with the impact of Covid–19, the CERC order is a welcome move as it announces no moratorium on monthly tariff payments due to generating companies and transmission companies,” Pratik Agarwal, managing director of Sterlite Power, told BloombergQuint. “This will ensure smooth functioning of the entire power sector, and avoid liquidity issues at this important hour where grid security is of utmost importance.”

The reduction in late payment surcharge from 1.5 percent per month to 1 percent per month will provide much needed relief to discoms, he said. “We’re thankful to CERC for considering the financial sustainability of the entire power sector value chain, and bring out a balanced order during these trying times.”

The regulator’s move comes after the Ministry of Power had said on March 28 that it was focused on mitigating the problem of discoms making their payments to generating and transmission companies.

The ministry had said in a representation to CERC that power distributors and state governments had requested a waiver of late payment surcharges following the severe restrictions announced by the government.

“The surcharge income will reduce by 6 percent per annum for genco-transmission companies like NTPC Ltd. and Power Grid Corporation Ltd.,” Rupesh Sankhe, vice president of research (power and renewables) at Elara Capital, told Bloomberg Quint. “These companies can defer payment to banks for interest but they must pay the principal later, which means this isn’t a force majeure impacted transaction.”

He, however, said that decline in power demand doesn’t come under the purview of force majeure, but if there’s a default in power transmission lines due to natural calamities, then force majeure can be invoked in purchase agreement contracts.