REC Limited, a public infrastructure finance company, has approved ₹220 billion (~$2.78 billion) for the power utilities of Jharkhand, Rajasthan, Chhattisgarh, and Jammu & Kashmir to clear their outstanding dues to power generators.

To address the mounting dues of the state power utilities, which have now crossed ₹1.5 trillion (~$18.98 billion), the Ministry of Power announced the Late Payment Surcharge Rules, 2022, in June this year. The program aims to strengthen the electricity suppliers and bring discipline to the power sector.

The new rules will help alleviate the interest burden on account of the late payment surcharge on power utilities. To support the distribution companies (DISCOMs), REC and the Power Finance Corporation (PFC) were advised by the Ministry of Power to help the DISCOMs to clear the dues on time.

DISCOMs owed renewable energy generators ₹237.06 billion (~$3 billion) in overdue payments (excluding disputed amounts) at the end of July. The figure marked an increase of nearly 18% compared to ₹200.37 billion (~$2.53 billion) at the end of June 2022.

Rajasthan, Jharkhand, Tamil Nadu, Maharashtra, Jammu & Kashmir, Madhya Pradesh, and Uttar Pradesh have pending power purchase dues of almost ₹960 billion (~$12.15 billion).

The distribution licensees of these states will pay around ₹26 billion (~$329.11 million) to their electricity suppliers on August 5, 2022.

The new rules apply to generating companies, interstate transmission licensees, and electricity trading licensees.

As per the rules, the total outstanding dues, including a distribution licensee’s late payment surcharge, may be cleared in a maximum of 48 monthly installments.

In case of a delay in payment of an installment, a late payment surcharge will be payable on the entire outstanding dues as of the date of notification of the rules. There will be no additional late payment surcharge on the outstanding dues if timely payment is made.

In January this year, the Power Finance Corporation (PFC) and REC reduced 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 which require long-term funding. The rates were reduced due to the lower cost of borrowing by both companies in the past year.

Earlier, the company announced that it had disbursed ₹4.7 billion (~$62.93 million) in loans to the renewable energy sector in the third quarter (Q3) of FY 2022. The amount was a 10% increase from ₹4.27 billion (~$57.17 million) disbursed in Q3 FY 2021.