Distribution companies (DISCOMs) owed power generators ₹867.6 billion (~$10.5 billion) in overdue payments for the monthly billing cycle at the end of June 2023.

The current outstanding dues, excluding the latest monthly dues, are ₹596 billion (~$7.2 billion).

The overdue before the trigger date is ₹270.6 billion (~$3.3 billion), after which the amount increases to ₹271.6 billion (~$3.3 million) as the late payment surcharge (LPS) would become applicable.

The trigger date is one month after the due date of payment or two and a half months after the presentation of the bill by the generating company, whichever is later.

The DISCOMs are allowed to pay the outstanding in up to 48 installments.

The Ministry of Power recently proposed provisions in the Electricity (Amendment) Rules, 2023, for subsidy accounting and payment and a framework to ensure the financial sustainability of DISCOMs.

Last June, the ministry notified the LPS and Related Matters Rules, 2022, which substantially raised the DISCOMs’ cost for delaying payment to suppliers. The new rules provided for an LPS payable on the outstanding sum after the due date at the base rate applicable for the first month of default.

The rules say that the rate of LPS for the successive months of default would increase by 0.5% for each month of delay, given that it will not be more than 3% higher than the base rate at any time.

Historically, the poor management of finances by DISCOMs has impeded the growth of the energy sector in India. After at least two decades of bailouts and reform programs, the state-owned utilities continue to be a drag on the electricity supply chain’s upstream segments of generation and transmission).

Aggregate technical and commercial losses of DISCOMs, however, declined to ~17% in the financial year 2021-22 from 22.32% in 2020-21, according to the data published by the Ministry of Power.

Mercom recently reported on how strict financing rules and penalties for non-payment have been the primary drivers in improved DISCOM performance.