Delinquent Discoms Pulled Up, Here’s What Should Come Next

Last week, Power System Operation Corporation Ltd. issued a directive to three power exchanges—IEX, PXIL and HPX—restricting electricity trading by 27 discoms from 13 states in all contracts till further notice from the delivery date of Aug. 19, 2022. This directive meant that such discoms can only utilise power from own generation companies and get power from generators with whom they have an agreement for supply. The discoms cannot purchase additional purchase for meeting their immediate requirements from exchanges.

The directives were issued in view of outstanding dues information available on PRAAPTI (Payment Ratification and Analysis in Power Procurement for Bringing Transparency in Invoicing of Generators) portal. The outstanding dues of the discoms amounted to nearly Rs 5,085.3 crore.

This was the first time after the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 were notified on June 3, 2022, that Posoco invoked provisions resulting in penalisation of discoms by debarring them from electricity purchases. Under the notified rules, a one-time relaxation was given to all discoms, freezing the amount outstanding, including principal and late surcharge, on the date of notification of the scheme. The rules bar discoms from power exchange transactions if dues to generation companies remain unpaid for more than seven months. In addition to power exchange transactions, discoms are barred from power transactions by utilising inter-state short-term open access in case the defaults continue.

The imposition of restriction led to reduction in overall average market size of power exchanges of 244 million units a day up to Aug. 18, 2022 to less than 130 MU/day for Aug. 19.

The administrative measure to discipline discoms was indeed useful and had the intended impact as quite a few of the discoms immediately made payments to clear their over dues. What is telling, however, is the inability of several discoms to fulfil their obligations due to their dire financial situation. For such discoms, it was a double whammy as the rules, in addition to the restriction on purchases, also restrict the discoms from selling power through the power exchanges as well.

The power market in our country comprises three different segments, with long-term contracts operating through bilateral frameworks between buyers and sellers, short-term transactions happening through traders or bilaterally and also, on the national market on power exchanges with participation from across the country. The power exchange market is the most efficient and transparent segment of the market in as much as payments happen without default and delay and where the price of power is transparently discovered. This being so, the temptation to tamper with the most transparent part of the market—power exchanges—is perhaps not the most efficient response to curb indiscipline and bad behaviour by participants.

Apart from the market disruption, there are questions being raised on the validity of the administrative action taken by the central government. Multiple viewpoints are being debated as regards the supremacy of rules and regulations vis-a-vis policies under the Electricity Act . Some state governments are also questioning the integrity of the overdues compilation itself to wriggle out of problem. The issue will no doubt continue to get debated and will also get challenged if possible as the malaise runs deep.