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India to boost DISCOMs by supplying continuous electricity despite outstanding dues

The Ministry of Power (MoP) has set forth a directive which affirms that power scheduling will take place even when the payment security mechanism (PSM) is slashed by 50% against the initial contract

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In India, the central public sector undertaking (CPSU) generation and transmission companies will be involved in the continuous supply and transmission of electricity to distribution companies (DISCOMs) despite the huge outstanding dues.

As the distribution companies are not commercially standalone, these measures along with others like, electricity duty cuts, allowed delayed payment from customers and eliminated peak time pricing will be of a significant boost to the distribution companies, says GlobalData, a leading data and analytics company.

In addition, the Ministry of Power (MoP) has set forth a directive which affirms that power scheduling will take place even when the payment security mechanism (PSM) is slashed by 50% against the initial contract. This directive will be in force until 30 June 2020

The center has also put forth guidelines to the Central Electricity Regulatory Commission (CERC) to offer a three-month moratorium to the DISCOMs to make their payments to power generating companies as well as transmission licensees and not to impose penal charges for late payment surcharge. The state governments are also asked to put forth similar guidelines to State Electricity Regulatory Commissions (SERC).

During this lockdown period, the MoP is also in close communication with the ministries of coal and railways, to ensure that there is a continuous supply of coal by domestic coal companies and transportation by the railways.

Somik Das, Senior Power Analyst at GlobalData, comments: “The government has come up with these measures to relieve the DISCOMs off their miseries. Due to the country’s lockdown scenario, power consumers are not able to make payments against their dues to DISCOMs. This has negatively impacted the DISCOMs’ liquidity, hindering them to pay to power generation and transmission companies.”

Power generation companies' total outstanding dues owed by DISCOMs increased by around 50% to US$11.5bn in December 2019 compared to the same month in 2018, highlighting the stress in the power sector. In addition to this, the lockdown further worsened the financial status of DISCOMs. There has been a shutdown of the industrial and commercial establishments and passenger railway services have ceased. This has reduced the electricity demand further, as these segments constitute nearly about 40% of the total electricity demand.

Although these measures would have helped the DISCOMs, they have a negative side to it as well. With these measures, the government rather than guaranteeing payments, has grounded them by clearing away DISCOMs at the expense of power generators, causing cash flow problems for power generators.

These relief measures by the government would hit the renewable power companies hard, especially wind and solar. As of January 2020, renewable energy generators' total outstanding dues owed by DISCOMs was around US$0.81bn.

Das concludes: “Delayed payments from customers are expected to be the most common issue that would be faced by the DISCOMs, which will disrupt their finances.

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