Discoms push back against proposal for upfront power payments

Power distribution companies (discoms) in the states of Maharashtra and Tamil Nadu have pushed back against a government recommendation to make them pay power producers in advance.

Delayed payments from discoms are seen as one of the main reasons behind the stress in the sector, and this in turn reduces the power generating companies' (gencos) ability to service debt. The inability to service debt leads to lower credit ratings and higher interest charges.

The discoms have instead pushed the blame to coal suppliers and the railways. Representatives from Maharashtra discoms told Financial Express: “Discoms solely can’t be blamed for any loss on account of these.”

A director of Tamil Nadu’s electricity board told the newspaper if the government makes pre-payment to gencos mandatory, the discoms of the state may engage in load shedding as they will not have enough cash to pay upfront. “The basic problem faced by the discoms is that revenue is not enough to meet the expenditure.”

It does not help that state government departments in the state of Tamil Nadu are major power bill defaulters. The discoms in the state are currently waiting on INR 1,500 crore (about US$10.8 million) of payments. According to The Times Of India, several government departments default and accumulate payment arrears every year.

As of August, it has been mandatory in India for state power discoms to use letters of credit when they buy power. The Indian government passed regulation in June to reduce delayed payments in the energy industry.

Discoms also face cashflow issues because they do not always receive subsidies from the state governments on time, and the state electricity regulators raise consumer tariffs infrequently and inadequately. They also find it difficult to get payment from their customers in the rural areas.