The new contribution scheme could benefit the energy sector, Crisil said

Electricity distribution companies could save a quarter of their additional payments if they subscribe to the Union’s new energy ministry scheme, according to Crisil Ratings.

The scheme allows discoms to convert arrears into equal monthly installments payable for 12-48 months. If fees and EMI are paid on time, they will not be charged for late additional fees.

According to Crisil, the success of the scheme, notified under the Electricity Rules (additional fee for late payment and related issues) from 2022, will depend on two factors: how discos can increase their revenues and an implementation mechanism that ensures timely payment to electricity producers.

According to Crisil, the upcoming contributions of Indian electricity distributors have risen to 1.2 rupees crore as of May 31 this year. “The scheme aims to provide immediate liquidity to generating companies. This is because, together with the start of payments, receivables can be discounted by banks on the basis of guaranteeing timely payment to EMI. This would help relieve working capital restrictions on the purchase of Gencos. coal, whose prices have risen due to geopolitical tensions. ”

Discoms will effectively pay Rs 20,000 to generating companies this fiscal – in addition to their annual electricity purchase price, Chrisill said.

“Funding this additional payment through internal accruals can be a challenge as discoms continue to suffer operating losses,” Manish Gupta, senior director of Crisil Ratings, said in a note. “But an immediate, one-time additional reimbursement through tariff or government assistance to cover at least the additional payments can help discos clear their fiscal debt.”

As this scheme is for a period of up to four years, improving operational efficiency by reducing overall technical and commercial losses can help disbursements in the medium term, the note said.

“This scheme is a potential benefit to the sick energy sector, as it gives discos time to improve their operational efficiency and their financial situation, while improving the liquidity of generating companies,” said Chrisill. “… the further development of the scheme and the implementation mechanism remain to be monitored.”

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