Discoms may be asked to pay 50% advance payments to power companies

The ministry of power on June 28 had issued an order mandating opening and maintaining of letter of credit as a payment security mechanism

To ease stress in the power generation sector, a Central Electricity Authority (CEA) panel has recommended that state distribution companies make advance payments to producers. Besides, the high-level committee, under CEA Chairman Prakash Mhaske, has suggested that power generation companies take legal action over non-payment by distribution companies.

Even as such dues amount to as much as Rs 22,313 crore (as on July 22, 2019), “perhaps none of them (power producers) has taken legal recourse to force discoms to comply with the provisions of PPA (power purchase agreement),” the committee has said in its report to the Ministry of Power. “Generating companies must look into the possibility of legal remedies to enforce their rights under PPA.” 

The committee proposed power generators using coal, lignite or natural gas should be given an advance of 25 per cent of the estimated bill for the next month and after one month, it should be increased to 50 per cent. Tamil Nadu Generation and Distribution Corporation (Tangedco) and Maharashtra State Electricity Distribution Company, however, are against making advance payments to generators. 

The ministry of power on June 28 had issued an order mandating opening and maintaining of letter of credit (LC) as a payment security mechanism. It asked load despatch centres to not schedule power to a distribution company from a generating station in the absence of an LC.

If a distribution company does not make pre-payment as per pre-decided frequency, “the generating company would presume that the discom is not interested” in the dispatch of power for the duration based on the frequency of pre-payment,” said the report. The resultant un-despatched capacity shall be akin to un-requisitioned surplus and the generating company should be allowed to dispose of it in accordance with 2016 Tariff Policy. Paragraph 6.2 (1) of the policy said notwithstanding any provision contained in the PPA, the buyer should communicate the same at least 24 hours earlier, enabling the generating stations to sell power in the market.

Since this is applicable only to generating stations set up under Section 62 of the Electricity Act, the report proposed an amendment to the tariff policy for extending its scope to all generating stations

“If the generating company is using linkage coal, it should be allowed to use the same for supplying the un-requisitioned surplus in the market,” said the report. 

The frequency of advance payment and when could be decided by distribution companies. 

The report noted that the move might lead to a shortage of working capital for distribution companies initially, especially for the month in which the pre-payment requirement will get introduced and when the advance payment is increased to 50 per cent. Respective state governments and lenders could pitch in with some financial support at that time, it suggested. 

Generation companies, on their part, could incentivise distribution companies by offering a discount on the bill. In the event of extra payment made by distribution companies, generation companies could give should pay interest on the advance. “The discount and rate of interest should be based on the regulatory orders issued from time to time,” said the report.