Power Minister Outlines Steps to Improve Financial Health of DISCOMs

In a written reply in Rajya Sabha, Union Power Minister RK Singh outlined the various steps taken by the government to help improve the financial health of the distribution companies (DISCOMs) in the country.

The statement said that the total outstanding dues owed by distribution companies (DISCOMs) at the end of December 2021 stood at ₹951.67 billion (~$12.73 billion).

The minister added that as of December 31, 2021, loans to the extent of ₹1.35 trillion (~$18.06 billion) had been approved. REC Limited and the Power Finance Corporation (PFC) had disbursed loans to the tune of ₹1.03 trillion (~$13.78 billion) to power generators, independent power producers, and renewable generators. Under the long-term transition loans, the disbursement has been linked with DISCOMs undertaking specified reform measures.

Last December, the Ministry of Power said that 39 out of 55 electricity DISCOMs had submitted draft proposals under the ₹3.03 trillion (~$40.82 billion) reforms-based result-linked power distribution program. The Ministry of Power had launched the reforms-based and results-linked, revamped distribution sector program to improve the operational efficiencies and financial sustainability of DISCOMs by providing financial assistance for modernization and strengthening of distribution infrastructure.

The minister added that to alleviate the financial stress on DISCOMs due to higher late payment charges; the government had advised generating companies and transmission companies to charge the late payment surcharge at a rate not exceeding 1% per month for all payments made under the ‘Liquidity Infusion Program’ from REC and PFC with a long repayment period up to 10 years.

The minister said that payment security mechanisms through the letter of credit and other modes were an integral part of most of the power purchase agreements (PPAs) between the generating companies and DISCOMs.

Speaking on the status regarding the letter of credit and the late payment surcharge, the minister said that the requirement of either making prepayment or giving the letter of credit with the entire cost of the power was relaxed to 50% during the period from March 24, 2020, to June 30, 2020.

The DISCOMs were required to either pay in advance or give the letter of credit for 50% of the cost of power they wanted to be scheduled; the remaining 50% was to be paid within the period given in the PPA, failing which the delayed payment surcharge would apply. This was not applicable for state power generators.

The minister, in his reply, said that as per the regulations, the late payment surcharge dues had been linked to the marginal cost of funds-based lending rates for one year of the State Bank of India.

DISCOMs owed renewable generators ₹141.42 billion (~$1.89 billion) in overdue payments (excluding disputed amounts) at the end of January 2022, according to the data released by the Ministry of Power.

Last month, PFC and REC reduced their lending rates by 40 basis points for all types of loans. The companies revised lending rates to 8.25% for loans of renewable energy projects to give the sector a boost, where long-term funding is required. The rates were reduced due to both companies’ lower cost of borrowings in the past year.