The Centre is considering a proposal to extend a special loan from Power Finance Corporation (PFC) to major defaulter States including Tamil Nadu, UP, Rajasthan, AP, Telangana, Maharashtra and Haryana in a bid to clear outstanding dues to private power producers.

Top industry sources told BusinessLine that a proposal to this effect was discussed at a recent meeting between senior officials of the Power Ministry and representatives of power producers.

“A new payment security mechanism is being set up which provides a breather to the independent power producers by potentially halting any further increase in the huge quantum of receivables, though the real success of this mechanism would be revealed once the August bills become due for payment. Other options including extending a special loan from PFC to States like Tamil Nadu, with a rider that the loan amount is to be used for making payments to generators, is under consideration,” said an official aware of the discussions between the Power Ministry and the industry.

The Association of Power Producers (APP) has also written to the Ministry of Power backing the proposal. According to government data, Tamil Nadu Generation and Distribution Corporation (Tangedco) has overdue payments of ₹9,807 crore.

In August this year, the total overdue amount for all the States put together, which was not cleared even after the 60-day grace period offered by generators, came up to ₹59,532 crore, compared to ₹34,464 crore in the same period in 2018, according to government data.

According to a recent Kotak report, outstanding dues of Discoms have swelled from ₹35,500 crore to ₹74,700 crore. Power producers give 60 days’ time to Discoms to pay their bills after which the outstanding becomes overdue and generators charge interest.

Reasons for pile-up

Some of the reasons for non payment of dues are non-revision of power tariffs, thefts and holding back of subsidy amounts which are not released in advance. In response to the non-payment of dues, the government has come up with a payment security mechanism wherein the Discoms are required to open a letters of credit (LC) for getting power supply.

Industry watchers opine that with such huge receivables, all power suppliers are on the verge of turning into NCLT cases.

It is here that the APP cites the September 2019 order by Tamil Nadu Electricity Regulatory Commission (TNERC), which directed the Tamil Nadu government to provide subsidy payment in advance to Tangedco, to compensate for the revenue shortfall.

“As this subsidy amount can be utilised by the Discoms to make their payments, the Power Ministry may consider approaching the Appellate Tribunal for Electricity (APTEL) to ensure that other State electricity regulators also pass similar orders,” the APP said in a communication.

After this, any amount to be recovered can be secured through a staggered mechanism of eight equal monthly instalments backed by additional LCs. However, the association believes that the instalments will result in more interest pile up, which would create working capital issues, as banks do not finance receivables overdue for more than six months.

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