The Union power ministry has directed states to honour their current dues to central power sector utilities (CPSU) or face reduced power supply, suspension of benefits under the Accelerated Power Development and Reforms Programme (APDRP) and even lower fund releases from the Centre.
In a missive to states, the Union power ministry has directed all state electricity boards (SEBs) to open and maintain irrevocable letter of credit (LC) equal to 105 per cent of their average monthly billing with respect to CPSUs for the preceding 12 months.
Failure to open the LCs before September 30, 2002, will attract reduction in supplies to the state from all CPSUs equal to 2.5 per cent of the average daily supply for the preceding 90 days, in addition to suspensions of benefits under APDRP, the ministry has told states.
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With the process of securitisation of past dues through the one-time settlement of SEB dues as per the Ahluwalia committee report already underway, the power ministry is now focusing on prevention of further defaults by states through such a step as suggested by the committee, ministry officials said.
The ministry has asked SEBs (or their successor entities) to adhere to the measures suggested by the ministry in respect of current payments to CPSUs due from October 1, 2001.
Payment of current bills need to be made prior to 60 days from the date of billing by CPSUs, or within 45 days of their receipts, whichever is later. Payments made after the specified period shall attract interest at the rate of 15 per cent per annum, compounded annually, the ministry has told state governments.
As per the letter, if payments are not made within the specified period, the supply of electricity shall be reduced by 5 per cent (inclusive of the reduction in supply for non-opening of LCs) as compared to the average daily supply for the preceding 90 days.
The reduction in supply shall be increased to 10 per cent and 15 per cent after 75 and 90 days of billing, respectively. Supplies of coal, lignite etc shall also be reduced in a similar manner, the ministry has told states.
As per the ministry's directive to states, defaults in making current payments shall attract suspension of funds under APDRP and any CPSU facing a payment default beyond 90 days from the date of billing would need to request the power ministry to suspend APDRP disbursements to the defaulting state. Following this, the Centre shall withhold any further releases until the default is cleared, the power ministry has told states.
Payments that remain outstanding beyond 90 days from the date of billing shall be recovered, on behalf of the CPSUs, by the ministry of finance through adjustments against releases due to the respective state, according to officials.
In order to incentivise compliance among states, SEBs or their successor entities that open the requisite LCs or establish acceptable security mechanisms by June 30 and operate them without default until December 31 shall be entitled to a cash incentive to two per cent of the nominal value of bonds issued to the respective CPSUs. The incentive shall be paid in cash by the CPSUs to the eligible SEBs on or before January 31, 2003, power ministry officials said.
CPSU officials said that so far only a handful of states have opened LCs with respect to their current billings, but the amount in all cases is much lower than the requisite 105 per cent of annual billings prescribed by the power ministry.