Power Ministry Decides to Check Erratic Late Payment Surcharges, Proposes Rules

The Ministry of Power (MoP) has proposed Late Payment Surcharge Rules 2020.

The government has noticed the extremely high rate of late payment surcharges prevailing in the sector. It has found that the high rates were determined at a time when the cost of borrowing was also high. But now that the rates of interest have reduced, it finds the need to reduce the late payment surcharge to reflect the current interest rates.

This late payment surcharge is payable by a distribution licensee (DISCOM) to a generating company for the power procured or by a user of the transmission system to a transmission licensee due to delay in payment of monthly charges beyond the due date.

The late payment surcharge will be payable on outstanding payments after the due date at the applicable bank rate or at the rate provided in the agreement for the supply of power (whichever is lower).

The due date is generally mentioned in the power supply agreement (PSA) or the power transmission agreement. If it is not mentioned in the agreement, it will be taken as 45 days from the conclusion of the power supply or the transmission for the month or the agreed period.

The surcharge on the outstanding payment will increase by 50 basis points each month after the first month’s expiry, subject to a maximum of the applicable bank rate plus 200 basis points. The rate will not be higher than the rate provided in the agreement for the purchase or transmission of power.

The regulations further state that all the payments by the DISCOM to a generating company for the power procured or payments by the user of a transmission system to a transmission licensee will be first adjusted toward the late payment surcharge. After that, the payment will be assigned against monthly charges starting from the bill that is the longest overdue.

The stakeholders can submit their comments and suggestions by October 29, 2020. The rules will come into force on the date of their publication in the official gazette.

Mercom has been tracking the regulatory orders on late payment surcharges. arlier, the MoP had suggested that the power generation and transmission companies reduce the late payment up to 12% annually for the DISCOMs.

In the past few months, many states like Punjab, Bihar, and Karnataka reduced the late payment surcharge because of the COVID-19 pandemic.

Late payment surcharges are paid overdue bills by DISCOMs which has only been mounting. As of July 2020, the DISCOMs owed renewable generators nearly ₹103.11 billion (~$1.4 billion) in overdue payment (excluding dues under dispute) spread across 579 invoices. The outstanding dues to renewable generators stood at ₹7.17 billion (~$97.25 million), with ₹123.7 million (~$1.68 million) under dispute.