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

• It has been noted that the rates in vogue were fixed when the lending rates were high and the rates of interest have since declined, the ministry said

• The draft proposes that the Late Payment Surcharge shall be payable at the applicable bank rate or the rate as provided in the agreement, if any, whichever is lower

New Delhi: Seeking to lower the late payment surcharge levied by power generating companies (gencos) and transmission companies (transcos) on distribution companies (discoms), the government has released Draft (Late Payment Surcharge) Rules, recently and has sought comments from stakeholders until October 29. The Ministry of Power has been looking to lower the late payment surcharge for discoms as part of a slew of reforms being planned to alleviate the financial stress in the power sector. Earlier in August, in a suggestion made to gencos and transcos, the ministry had asked these companies to reduce the late payment surcharge (LPS) up to 12 percent annually for all late payments made under the liquidity infusion programme.

'Late Payment Surcharge should reflect cost of borrowing'

Explaining the rationale behind the proposal, the ministry 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. Accordingly, Government has framed draft Electricity (Late Payment Surcharge Rules) 2020."

What do the draft rules propose?

The draft proposes that the Late Payment Surcharge shall be payable on the payments outstanding after the due date at the applicable bank rate or the rate as provided in the agreement for supply or transmission of power, if any, whichever is lower. "The rate at which Late Payment Surcharge shall be payable on outstanding payment shall increase by 50 basis points each month after the expiry of the first month after the due date, subject to a maximum of applicable bank rate plus 200 basis points: Provided that the rate shall not be higher than the rate provided in the agreement for purchase or transmission of power, if any," said the draft.

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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, the ministry said.

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