New Scheme Can Help Discoms Save A Quarter Of Additional Payments, Says Crisil
Discoms could potentially save a quarter of their additional payouts if they subscribed to the Ministry of Power’s new scheme.
Electricity distribution companies can save a quarter of their additional payouts if they subscribe to the Union Ministry of Power’s new scheme, according to Crisil Ratings.
The scheme allows discoms to convert overdues into equated monthly instalments payable over 12-48 months. If the dues and EMIs are paid on time, they won’t be billed for late surcharges.
According to Crisil, the success of the scheme, notified under the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, will depend on two factors: how discoms are able to enhance their revenues, and an enforcement mechanism that ensures timely payment to power producers.
Pending dues of India's power distributors have risen to Rs 1.2 lakh crore as on May 31 this year, according to Crisil. "The scheme aims to provide immediate liquidity to gencos. That’s because, along with commencement of payments, the receivables can also be discounted by banks based on the assurance of timely payment of EMIs. This would help free up working capital limits for gencos to buy coal, the prices of which have soared because of geopolitical tensions."
Discoms will effectively pay Rs 20,000 crore to generation companies this fiscal—in addition to their annual cost of power purchase, Crisil said.
"Funding this additional payout through internal accruals could be a challenge as discoms continue to incur operating losses," Manish Gupta, senior director at Crisil Ratings, said in the note. "But an immediate, one-time additional recovery through tariff or government assistance to at least cover the incremental payouts could help discoms clear their dues this fiscal."
Since this scheme is for up to four years, improving operating efficiency through reduction in aggregate technical and commercial losses could support payouts over the medium term, the note said.
"This scheme is a potential boon for the ailing power sector since it affords discoms time to improve their operating efficiency and, in turn, their financial position, while simultaneously improving the liquidity of gencos," Crisil said. "...further developments on the scheme and the enforcement mechanism remain the monitorable."