New Delhi: The government has constituted a committee under the Central Electricity Authority (CEA) to explore prepaid payments by state electricity distribution companies to power plants, a government official said. With this the government has deferred a decision on a recommendation made by Cabinet Secretary P K Sinha led panel to put in place a bill discounting mechanism ahead of elections.

The committee, constituting chairmen of distribution companies of Tamil Nadu and Maharashtra, representatives from Union power ministry and power associations, will look into problems of delayed payments from distribution companies to power generators, the official said.

The power ministry has already issued an advisory to states to shift to prepaid smart metering for all consumers in the next three years. “In this regard, a view has emerged that the payments from discoms to generation companies may also be moved towards a prepaid system,” the official said. The CEA –led committee has been asked to submit its recommendations to the power ministry in one month. 

The committee will study working capital cycles of power distribution companies and generation companies and identify gaps contributing to stress in the sector.

It will also study the regulations with respect to payment mechanisms and transactions across power sector value chain and suggest a mechanism for the prepaid system of transactions, he said. Power generators pay in advance to coal companies while delayed receivables from discoms mounted Rs 30,000 crore this year.

Sinha-led high level empowered committee had suggested that financial institutions like REC and Power Finance Corp (PFC) may discount receivables from discoms and make up front payment to generators. The financial institutions providing the bill discounting facility be covered by tripartite agreement so that in case of default by discoms, Reserve Bank may recover dues from the account of states and make payment to the funding agencies.

Other recommendations of the Sinha panel are being looked into by a group of ministers headed by finance minister. 

“Delay in realisation of receivables from discoms impairs the ability of project developers to service debt in a timely manner and leads to exhaustion of working capital. In some cases, the discoms have pressed for renegotiating terms of PPA. This, coupled with non-payment of penalties / Late Payment Surcharges is causing financial stress for such projects,” the panel report had noted.