The Ministry of Power has issued new regulations regarding the late payment surcharge, which will be applicable for power purchase agreements (PPAs) and transmission service agreements in which the tariffs have been determined through competitive bidding.

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 delay in payment of monthly charges beyond the due date.

As per the ‘Late Payment Surcharge Rules, 2021,’  the late payment surcharge will be payable on the outstanding payment after the due date at the base rate of late payment surcharge for the first month of the default. The late payment surcharge rate for the successive months will increase by 0.5% for every month of delay. The surcharge should not be higher than 3% of the base rate at any time.

The rule will be applicable when the rate of late payment surcharge payable is not higher than the rate specified in the agreement for the purchase or transmission of power.

Further, a DISCOM which has a late payment surcharge outstanding against a bill after the expiry of seven months from the due date will be debarred from procuring power from a power exchange or grant of short-term open access until such bill is paid.

According to the new rules, all payments by a DISCOM to a generating company for power procured from it or by a user of a transmission system to a transmission licensee should be first adjusted towards late payment surcharge and thereafter, towards monthly charges, starting from the longest overdue bill.

In October last year, the Ministry of Power proposed ‘Late Payment Surcharge Rules 2020.’ The Ministry said it found the rates of late payment surcharges too high and not in line with the current borrowing cost. Since rates of interest have fallen over time, there was a need to reduce the late payment surcharge.

Last year, many states like Punjab, Bihar, and Karnataka reduced the late payment surcharge in the wake of the COVID-19 pandemic.

As of December 2020, DISCOMs owed nearly ₹121.12 billion (~$1.65 billion) to renewable energy generators (excluding disputed amounts) in overdue payments across 380 pending invoices.

Mercom had written about the Ministry of Power’s proposed reduction in late payment surcharges and how it would affect the power generators who were already experiencing late payments and had to lose out on the interest for the amount delayed.