Central Electricity Authority explores TReDS-like e-platform for discoms to pay IPPs

The panel formed under chairman of the Central Electricity Authority (CEA) to explore prepaid payments by state discoms to independent power producers (IPPS) has suggested setting up an e-platform for discounting of bills on the lines of the system being used by MSMEs.

In February this year, the government had constituted a panel under the CEA to explore prepaid payments options by state electricity distribution companies, which are known for delayed payments, to power plants.

Following this, in June, the Union power ministry had mandated state-run discoms to offer letters of credit (LCs) against their power purchases as a payment security from August 1. Since then most discoms have started issuing LCs. The panel was headed by CEA chairman Prakash Mhaske had members from the Union power ministry, power producers and two state-run discoms.

Cash-starved state discoms, it can be noted that, owe over Rs 51,000 crore in arrears to private sector power producers, leading to the over Rs 3 lakh crore bad loans among 30 producers in the power sector, which are still awaiting resolution. The arrears were close to Rs 72,000 crore in December 2018.

The committee in its report, PTI has a copy of the same, has recommended creating an e-platform for discounting of bills for generation companies wherein commercial banks can act as financiers. “This platform will be similar to the trade receivable discounting system (TReDS) being used for discounting of invoices by MSMEs,” says the report.

The panel has also recommended 50 percent advance payment of the estimated bill for generating stations using fuel such as coal, lignite or gas. “In other cases, the advance payment can be 25 percent of the estimated bill amount,” say the committee report.

The committee has also recommended that the states formalise an arrangement for direct transfer of dues from other government departments to their respective discoms. An industry expert, however, opined that the recommendations are regarding future payments and is silent on the dues. So the government needs to set up a mechanism for the delayed payments already stuck with the discoms.

“The dues are to the tune of Rs 51,000 crore. The government plans to direct discoms to issue LCs is a positive step, but what about the past dues. The government will have to take immediate steps in this regard,” he told PTI.

Under the arrangement, LCs will be invoked if the discom defaults beyond the 45-60-day grace period, as provided in the power purchase agreements. The government has made it mandatory for power distribution licensees to open and maintain adequate letters of credit as a payment security mechanism under the power purchase agreements.

Under the proposed LC model, the national, regional and state load dispatch centres are directed to supply electricity only after they are informed by the producers and the discoms that an LC for the desired quantum of power has been opened and the copies of the same are made available to the generating company concerned. The dispatch centres will be informed about the period and the quantity of power supply.

The dispatch shall stop once the quantum of electricity under the LC has been supplied. The Centre later relaxed some of these provisions and exempted discoms from offering LCs before procuring electricity from state-run generation companies.