Power Ministry reduces discom penalties to 5% over SBI lending rate

The government has lowered the late payment fee chargeable by power and transmission developers from distribution companies by linking it to State Bank of India's lending rate against the current 18%.

The Electricity (Late Payment Surcharge) Rules 2021 exclude existing power plants and transmission systems whose tariffs have been determined through competitive bidding.

The rules bar electricity distribution companies with any outstanding bills after seven months from due date from procuring power from power exchanges or grant of short -term open access. The rules came into force on Monday when they were notified.

The gazette notification issued by the power ministry evoked mixed response from the industry as it supersedes regulations of the Central Electricity Regulatory Commission (CERC) and also the power purchase/transmission agreements. CERC chairperson P K Pujari had in October sent a statutory advice to the government against issuance of the rules citing jurisdictional overlap.

The power distribution companies welcomed reduction in late payment fee while electricity generation plants and transmission companies with regulated tariffs said lowering of the penalty rates interest would discourage timely payments by states. Data available on Praapti portal showed that the overdue amount payable by discoms to power plants at end of December 2020 stood at Rs 1,27,668 crore.

Industry officials said the government’s interference in the legally binding contracts between developers and distribution companies sets a wrong precedent, particularly at a time when the Centre is dissuading states like Andhra Pradesh and Gujarat from reneging signed agreements.

As per the rules issued on Monday, Late Payment Surcharge shall be payable on outstanding dues at the base rate, which is five percent over the marginal cost of funds based lending rate for one year of the State Bank of India or any other arrangement notified by the Centre. Also, the rules provide that the rate shall increase by 0.5 percent for every month of delay to a maximum of 3 percent higher than base rate. They also provide that if the period of default lies in two or more financial years, the base rate of Late Payment Surcharge shall be calculated separately.

All payments by a distribution licensee to a generating company or a trading licensee for power procured or transmission access shall be first adjusted towards Late Payment Surcharge and thereafter, towards monthly charges, starting from the longest overdue bill, the rules said.

The power ministry had during lockdown asked central power undertakings to forgo upto one-fourth of fixed charges they collect from state distribution companies for the lockdown period. Upon the power ministry’s directive, CERC had also reduced LPS payable by distribution companies to generation and transmission companies to 1% per month from the previous 1.5% per month during the lockdown period.