The Ministry of Power (MoP) has notified the ‘Late Payment Surcharge and Related Matters Rules, 2022.’
According to the rules, a late payment surcharge will be payable on the outstanding amount after the due date at the base rate of the late payment surcharge applicable for the first month of default. The rate of late payment surcharge for the successive months of default will increase by 0.5% for every month of delay, provided that the late payment surcharge will not be more than 3% higher than the base rate at any time.
Late payment surcharge refers to the charges payable by a distribution company (DISCOM) to a generating company or electricity trader for power procured or by a user of a transmission system to a transmission licensee on account of a delay in payment of monthly charges beyond the due date.
Adjustment toward late payment surcharge
All payments by a DISCOM to a generating company or a trading licensee will be first adjusted toward a late payment surcharge and after that towards monthly charges, starting from the longest overdue bill.
Liquidation of arrears
The total outstanding dues, including the late payment surcharge up to the date of the notification of these rules, will be rescheduled and the due dates re-determined for payment by a DISCOM in equated monthly installments (EMI):
The DISCOM should communicate to the generating company, transmission licensee, or electricity trading licensee the outstanding dues and the number of EMIs in which the outstanding dues would be paid. This communication should be sent within 30 days of these new rules coming into effect.
The first due date for payment of the EMI will be the fifth day of the immediate month after 45 days from the notification of these rules, and the due date for all subsequent EMIs will be the fifth day of the subsequent months.
In case of delay in EMI payment, the late payment surcharge will be payable on the entire outstanding dues as on the date of notification of these rules.
Payment security mechanism
A DISCOM or other user of a transmission system should maintain an unconditional, irrevocable and adequate payment security mechanism.
In case of non-maintenance of payment security mechanism, the generating companies, electricity trading licensees, and transmission licensees should regulate the power supply to the distribution licensee.
Power will be supplied only if an adequate payment security mechanism is maintained or, in its absence, advance payment is made.
If the generating company supplies power without the payment security mechanism or without advance payment, it will lose the right to collect the late payment surcharge from the distribution licensee.
In the case of non-payment of outstanding dues, the obligation of the generating company to supply power will be reduced to 75% of the contracted power to the distribution licensee. The generating company may sell the balance of 25% of contracted power through the power exchanges.
The gain from the sale of such power – the difference between the selling price in the Exchange and the expense borne by the generating company – will be adjusted in the following order:
- Recovery of fixed charges
- Liquidation of the overdue amount
- The balance will be shared in the ratio of 75:25 between the distribution licensee and the generating company
Regulation of access to defaulting entities
In the case of non-payment of dues by the distribution licensee or other users of the transmission system, even after two-and-a-half months from the presentation of the bill or in case of default in EMI payment, power supply to the defaulting entity will be regulated as follows:
- Short-term access for the sale and purchase of electricity, including in the power exchange, will be regulated entirely, provided that the National Load Despatch Centre (NLDC) may, under exceptional circumstances for grid security, temporarily review the regulation of short-term access.
- If one month after the regulation of short-term access or the dues have been unpaid for three-and-a-half months, long and medium-term access will be regulated by 10%.
- Reduction or withdrawal of long-term access and medium-term open access will be such that the quantum of reduction in drawal schedule increases progressively by 10% for each month of default.
- NLDC will issue a detailed procedure to implement the regulation of access according to these rules.
Generator’s supply obligation
If the generating company does not offer the contracted power to a distribution licensee and sells the power to a third party, it will be debarred from trading and scheduling any new short-term contracts for three months.
The debarment period will increase to six months for the second default and one year for each subsequent default.
Power not requisitioned by a distribution licensee
A distribution licensee should inform its schedule for requisitioning power for each day from each generating company with which it has an agreement to purchase power at least two hours before the end of the time for placing bids in the day-ahead market. If it fails to do so, the generating company may sell the un-requisitioned power in the power exchange.
The gain from the sale of such power will be adjusted in the following order:
- Payment to generating company of up to ₹0.03 (~$0.0004)/kWh
- Recovery of fixed charges
- Liquidation of the overdue amount
- The balance will be shared in the ratio of 50:50 between the distribution licensee and the generating company
The liability of payment of fixed charges towards the un-requisitioned power will remain with the distribution licensee.
If the distribution licensee does not requisition power from a must-run power project, the compensation will be payable by the licensee to the generating company owning the must-run power project at the rate specified in the agreement for the purchase of power.
DISCOMs owed renewable generators ₹204.39 billion (~$2.64 billion) in overdue payments (excluding disputed amounts) at the end of May. The figure marked an increase of nearly 2% compared to ₹200.44 billion (~$2.59 billion) at the end of April 2022.
Last February, the Ministry of Power had issued the ‘Late Payment Surcharge Rules, 2021.’
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Rakesh Ranjan is a staff reporter at Mercom India. Prior to joining Mercom, he worked in many roles as a business correspondent, assistant editor, senior content writer, and sub-editor with bcfocus.com, CIOReview/Silicon India, Verbinden Communication, and Bangalore Bias. Rakesh holds a Bachelor’s degree in English from Indira Gandhi National Open University (IGNOU). More articles from Rakesh Ranjan.