Tripartite Agreement Discoms

Counterparty risk related to regular late payments/delays by distributors is one of the most critical risks for electricity producers. Nearly 88% of electricity sales of electricity producers in India are made through long-term interconnections[1] with distributors. Traditionally, in India, discoms are state-owned and suffer from leaks in the transmission and distribution system, poor collective efficiency, tariff controls, etc. Normally, the country`s largest electricity producer sends regulatory notices to discoms to force them to charge royalties. As FE reported, NTPC had informed the discoms of a large number of states, including Uttar Pradesh, Bihar, Odisha, Telangana, Andhra Pradesh and Karnataka, to limit electricity supply from 10 March if bills are not paid promptly. In accordance with these communications, verified by the FE, the company repeatedly reminded states to settle accounts, but without success. At present, distributors (Discoms) owe more than Rs 92 trillion to power producers, mainly in the private sector, which strongly affects the energy sector. In total, at the end of March 2020, discom costs for power producers across India, including private units, stood at Rs 90.577 billion, more than a year earlier. About 88% of them (Rs 79,829 crore) were “over-contributions”. The total amount owed would be even higher if the current unpaid bills were accounted for by major electricity players such as Adani Power and GMR Energy. In order to ensure an uninterrupted power supply in the midst of the national lockdown aimed at stemming the outbreak of the coronavirus, the Union Ministry of Energy had relaxed at the end of March the standard of payment of discoms and asked NTPC not to reduce the supply of states, even if discoms did not pay. “If the unpaid fees for discoms from the last 60 days were added, the numbers would rise to more than 50,000 crore,” said a senior official at a heat company. In addition to tracking discoms to liquidate fees, the company is also looking at all other options, such as market borrowing, to make up for the liquidity gap resulting from defaults.

In the event of default due to discoms, PFIs are covered by a tripartite agreement with the Reserve Bank of India and the states, in which the RBI can withdraw the money directly from a state`s accounts and pay the financial institution. Generators enter into electricity acceptance contracts (ECA) with discoms for the sale of electricity on important contractual terms such as duration, tariff, billing and payment security mechanism. However, the poor financial health of discoms increases the price at which electricity producers can raise capital due to debt risk. In addition, late payments to electricity producers have a serious impact on cash flows for electricity producers and undermine their long-term viability. In order to reduce both the perception and quantum of this risk for investors, the government has guaranteed several stages of payment security in PPAs for renewable energy, such as accreditation, fiduciary agreement, payment security fund, tripartite agreement and government guarantee. This is called the payment security mechanism. The list below describes each briefly: unpaid fees from discoms to power producers increased by 39,488 Crore in October 2018, an increase of 24.7% compared to the previous year`s level in New Delhi: amid stress in the electricity sector, the problems of power generation companies continued to worsen, their unpaid royalties for public distribution companies (Discoms) having increased to 39,498 crore in October 2018; an increase of 24.7% compared to the previous year`s level. Official data have been provided. These agreements, first signed at the GJ02 and extended by a decade in 2016, oblige the Reserve Bank of India (RBI) to deduct the amount of the loss from the Land government`s accounts with the Central Bank. “Private sector investment has helped India generate a surplus of electricity. It is therefore the sacrosanct obligation of discoms to pay them contributions.. .

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