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NEW DELHI : State-run Power Finance Corp. Ltd. (PFC) and its subsidiary REC Ltd. are expected to lend around 1.2 trillion to state-run electricity distribution companies (discoms) under the Union government’s ambitious one-time settlement scheme that will kick in from 5 August, said two government officials.

In a first, dues of state-owned power generation companies (gencos) are expected to be cleared under the scheme that will run for four years. Dues of discoms, including late payment surcharge, will be converted into equated monthly instalments (EMIs) ranging from 12-48 months depending upon the quantum of arrears. Discoms have been perennially plagued by low collections, rise in power purchase cost, inadequate tariff hikes and subsidy disbursement, and government departments’ unpaid dues.

As part of the plan, REC will provide a financial assistance of around 22,000 crore for clearing outstanding dues of discoms in Jharkhand, Rajasthan, Chhattisgarh and Jammu & Kashmir.

“If discoms don’t pay their dues on time, their is a late payment surcharge levied on arrears. We working on a silver bullet to solve the vexed issue of late payment surcharge. The total amount over the lifetime of the scheme is expected to be around 1.2 trillion to be given by PFC and REC," said one of the senior government officials cited above, requesting anonymity.

“For the fist time state gencos dues will also be cleared. Till now only the central gencos and transco dues were cleared," the official added.

Last week, Prime Minister Narendra Modi had drawn attention to 2.5 trillion worth of pending dues of gencos and discoms. He had said discoms were owed more than 60,000 crore by government departments and local bodies, and states owed 75,000 crore in arrears to discoms on account of supply of subsidised electricity. The prime minister had urged states to clear their dues to gencos while launching the 3 trillion Revamped Distribution Sector Scheme.

“As a step towards addressing the issue of mounting dues of the state power utilities which have now crossed 1,50,000 crore, the Ministry of Power, Govt. of India has issued Electricity, (Late Payment Surcharge and Related Matters) Rules, 2022 (LPS Rules 2022)," REC said in a statement on Thursday.

“Major states such as Rajasthan, Jharkhand, Tamil Nadu, Maharashtra, J&K, Madhya Pradesh and Uttar Pradesh with pending power purchase dues to the tune of almost 96,000 crore are complying with the rules. In line with the same, the distribution licensees of the above states will be paying around 2,600 crore to their electricity suppliers on the 5th of August, 2022," as per the statement.

Others government measures include linking reforms with additional borrowings by states, and bringing prudential norms of banks to that of largest power sector lenders such PFC and REC.

“This initiative works with the sole aim of financially strengthening the electricity suppliers and bringing financial discipline in the power sector. Furthermore, it will ensure that the end consumer not only gets reliable and quality uninterrupted supply of electricity, but additionally it alleviates the interest burden on account of late payment of power purchase dues by the state utilities. REC and PFC (State run financial institutions in the power sector) were advised by the Ministry of Power to extend their support to discoms for timely payment of their dues under the new LPS rules," the REC statement added.

Queries emailed to the spokespersons of PFC, REC and Union power ministry remained unanswered till press time.

The government is lining up an ambitious plan for the power sector as part of its Vision 2047 to meet the country’s enhanced energy demand to drive economic growth, while ensuring access to cost-competitive, reliable and clean electricity, as reported by Mint. This includes improving corporate governance practices of state owned discoms, making tariff cost effective, reducing cross subsidies and shortening duration of power purchase agreements from 25 years.

“The distribution licensee shall specify within thirty days of the promulgation of these rules the amount of outstanding dues and number of instalments in which they would be paid to the electricity suppliers. In case of delay in payment of an instalment, a late payment surcharge will be payable on the entire outstanding dues as on the date of notification of the rules. There will be no additional LPS payable on the outstanding dues if timely payment is made. Thus, timely payment of outstanding dues forms the core of the LPS rules," the REC statement said.

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