Late Payment Surcharge Rules Help Cut Receivables Of Power Producers: India Ratings

Payment Surcharge 2022 Rules is facilitating receivables reduction for independent power producers, according to India Ratings and Research (Ind-Ra).
    
India Ratings and Research (Ind-Ra) said the implementation of the LPS Rules 2022 issued by the Ministry of Power on June 3, 2022, has brought in greater discipline from state electricity distribution companies (discoms) in making timely payments to independent power producers (IPPs) in the renewable and thermal power sectors.
    
Ind-Ra's portfolio has witnessed reductions across most states, significant in some—such as Telangana, Andhra Pradesh and Madhya Pradesh (receivables on October 22 at 30-90 days compared to 120-450 days in May 2022)—and an improving trajectory in others, namely Maharashtra, Tamil Nadu and Karnataka, the statement said.
    
The scheme encourages payment discipline from discoms, given the risk of losing short and eventually medium- or long-term access to the power supply through the interstate transmission system (ISTS), it added.
    
Along with the reduction, a greater alignment across IPPs and a level playing field with central utilities for payment security provide for greater stability in cash flows and mitigate liquidity pressures in the stressed project, the agency said. 
    
Ind-Ra expects ratings in its portfolio in the investment grade to remain resilient; on the other hand, the rules will limit downside risks to stressed projects in the non-investment grade.
    
However, the EMI (equated monthly instalments) payments for realising the accumulated dues up to June 3, 2022, through the scheme are primarily facilitated by funding from Power Finance Corporation Ltd and/or REC Ltd (IND AAA/Stable), adding to the debt liability of discoms, the agency pointed out.
    
A structural shift in the viability of the entire value chain would necessitate addressing issues of chronic revenue deficits through an operational improvement of discoms, it suggested. 
    
In Ind-Ra’s opinion, while these are being addressed through various schemes and may take time, strict implementation of LPS may provide the bridge to ensure that the sector continues to draw investments in the interim.