Govt lowers Late Payment Surcharge for discoms, links it to SBI lending rate

• Existing power plants and transmission systems whose tariffs have been determined through competitive bidding are outside the purview of the new legislation

• The government has also barred discoms with any outstanding bills after seven months from due date from procuring power from power exchanges or grant of short-term open access

New Delhi: With a view to alleviate the stress in the power distribution sector, the Centre has lowered the late payment surcharge levied by power and transmission developers on discoms by linking it to the State Bank of India's (SBI) lending rate. The rules have been notified by the government in a Gazette notification recently. According to the Electricity (Late Payment Surcharge) Rules 2021, existing power plants and transmission systems whose tariffs have been determined through competitive bidding are outside the purview of the new legislation.

Discoms to pay Late Payment Surcharge at base rate

For the first month of default, Late Payment Surcharge shall be payable on the outstanding after the due date at the base rate of Late Payment Surcharge applicable for the period, the new rules said. Base rate of Late Payment Surcharge means the marginal cost of funds based lending rate for one year of the SBI, as applicable on the April 1 of the financial year in which the period lies.

The rate of Late Payment Surcharge for the successive months of default by discoms shall increase by 0.5 percent for every month of delay provided that the Late Payment Surcharge shall not be more than 3 percent higher than the base rate at any time, said the new rulebook. It added that if the period of default lies in two or more financial years, the base rate of Late Payment Surcharge shall be calculated separately.

Govt bars discoms with outstanding bills from procuring power from exchanges

The government has also barred discoms with any outstanding bills after seven months from due date from procuring power from power exchanges or grant of short-term open access. "All payments by a distribution licensee to a generating company or a trading licensee for power procured from it or by a user of a transmission system to a transmission licensee shall be first adjusted towards Late Payment Surcharge and thereafter, towards monthly charges, starting from the longest overdue bill," said the notification.

The backdrop

During the lockdown, the Centre has asked all power generating companies and transmission companies to charge Late Payment Surcharge at a rate not exceeding 12 percent per annum (simple interest) for all payments made by discoms under the Liquidity Infusion Scheme of state-run Power Finance Corporation (PFC) and REC Limited under Atmanirbhar Bharat.

ALSO READ: Govt seeks to lower Late Payment Surcharge for discoms, releases draft rules

PSU Watch had earlier reported in October 2020 that the government was looking to lower late payment surcharge levied on discoms and had floated draft rules in this regard. Explaining the rationale behind the proposal, the ministry had said in the draft document, "The attention of the Government has been drawn from time to time towards the extremely high rates of late payment surcharge which are in vogue at present. Government have carefully examined the matter. It has been noted that the rates in vogue were fixed when the lending rates were high. The rates of interest have since declined. It is necessary that the rates of Late Payment Surcharge reflect the current cost of borrowing."

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