The prospect of heavy penalties on delayed payments has prompted the state-owned power distribution companies (DISCOMs) to clear outstanding dues worth ₹246.8 billion (~$3.04 billion) in just four installments, the Ministry of Power (MoP) said in a statement.

The outstanding dues of suppliers, including Generating Companies (GENCO), Transmission Companies, and Traders, stood at ₹1.13 trillion (~$13.9 billion) in November 2022, a drop of 17% compared with June.

The ministry said that five Indian states availed a loan of ₹168.12 billion (~$2.07 billion) from the Power Finance Corporation (PFC) and REC Limited, while eight other states made their own arrangements to clear outstanding dues and avoid the regulations under Electricity (Late Payment Surcharge -LPS- and related matters) Rules, 2022.

The Ministry added that the DISCOMs also cleared nearly ₹1.68 trillion (~$20.68 billion) of their current dues in the past five months.

In June this year, the MoP notified the LPS and Related Matters Rules, 2022, which substantially raised the DISCOMs’ cost for delaying payment to suppliers.

The new rules provided for a LPS payable on the outstanding sum after the due date expires will be levied at the base rate of LPS applicable for the first month of default.

The rules said 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.

“Based on the results achieved so far, it is expected that strict implementation of the LPS Rules will bring back the financial viability of the power sector in the country and would attract investment to ensure reliable 24×7 electricity to the consumers,” the ministry said.

It added that the rule has not only ensured that the outstanding dues are liquidated but also that the current dues are paid on time.

In August this year, REC Limited approved ₹220 billion (~$2.71 billion) for the power utilities of Jharkhand, Rajasthan, Chattisgarh, and Jammu & Kashmir to clear their outstanding dues to power generators.

Earlier this month, ReNew Power attributed its quarterly profit to receiving late payment surcharges from DISCOMS on outstanding payments.

In a statement to the Securities and Exchange Commission (SEC), the company said, “Andhra Pradesh & Telangana DISCOMs have agreed to clear the overdue receivables in 12 installments, and Madhya Pradesh, Tamil Nadu & Karnataka DISCOMs have agreed to clear their past due receivables between 40-48 months. A few DISCOMs have also agreed to release/pay overdue interest as per Late Payment Surcharge rules.”