The success of the scheme will depend on two factors, firstly, how discoms are able to enhance their revenues, and secondly, an enforcement mechanism that ensures timely payment to gencos
A new equated monthly installment scheme introduced by the power ministry can help electricity distribution companies (discoms) save a quarter of their additional payouts and clear around Rs 20,000 crore payments to generation firms (gencos) this fiscal, according to Crisil Ratings.
"Electricity distribution companies (discoms) could potentially save a quarter of their additional payouts, and effectively pay Rs 20,000 crore to generation companies (gencos) this fiscal — in addition to their annual cost of power purchase — if they subscribe to the ministry of power's new scheme," Crisil said in a statement.
Under this scheme, overdue, including past Late Payment Surcharge (LPS) as on the cut-off date of June 3, 2022, will be converted into Equated Monthly Instalments (EMIs) that Discoms have to pay over 12 to 48 months, based on different slabs.
If Discoms clear the fresh dues and EMIs on time, going forward, they won't be billed for LPS by gencos, it stated.
The success of the scheme will depend on two factors, firstly, how discoms are able to enhance their revenues, and secondly, an enforcement mechanism that ensures timely payment to gencos.
In fiscal 2021, the central government unveiled the Aatmanirbhar Bharat package worth Rs 1.35 lakh crore to clear discom dues. However, its impact was short-lived and most discoms continue to face liquidity challenges following operating losses and their dues remain high at Rs 1.2 lakh crore as of May 31, 2022.
The scheme aims to provide immediate liquidity to gencos. That's because, along with the 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.
Manish Gupta, the senior director, Crisil Ratings, said in the statement, "With savings of 25 per cent (Rs 6,500 crore to Rs 7,500 crore), the net payout of discoms to gencos is likely to be ~Rs 20,000 crore this fiscal, over and above their yearly cost of power purchase. Funding this additional payout through internal accruals could be a challenge as discoms continue to incur operating losses. 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."