With demand for electricity falling due to the coronavirus-induced nationwide lockdown, many state electricity distribution companies (discoms) are invoking force majeure clause as allowed by their power purchase agreements (PPA) with power producers.

Share Market Live

NSE

This has led to fear among the power generating companies that discoms may default on payment even as they are bound to maintain the government's promise of 24/7 power supply.

Thanks to the pan-India lockdown due to COVID-19 pandemic, peak demand has fallen by about 20 percent.

State discoms like Uttar Pradesh, Madhya Pradesh, Telangana, Punjab, Haryana, have invoked the force majeure clause as per PPA clause.

Sources told CNBC-TV18 that in Delhi BSES-led discoms have informed their generators that they may invoke force majeure if the situation requires but it also clarified that it continues to pay power generators on best effort basis.

“We have written letters to the generating and transmission companies apprising them of the challenge. CERC is expected to give some clarity in the next few days,” said a Tata Power-DDL Spokesperson.

A force majeure clause allows a party to not discharge its contractual obligations in case of unforeseeable extraordinary events.

Private-sector power generators are worried that despite relief given to discoms on payment security mechanism of 50 percent till June 2020 and moratorium of three months on payment to power generation and transmission companies, discoms will continue to default on payment.

"Power companies continue to supply uninterrupted supply despite challenges. Some states have misinterpreted the force majeure clause. If distributors do not pay the generation companies, it will not be able to supply power," said Praveer Sinha, MD & CEO of Tata Power.

He added that discoms were not making payments even before the COVID-19 crisis.

"We need to work in a cooperative and collaborative manner. Consumer payments for power bills will get impacted which will lin turn impact cash flows for the discoms. RBI's moratorium will support power generation companies," he said.

The Association of Power Producers' had recently raised the issue of payment default on account of force majeure invoked by the states and also suggested that the central government provide a liquidity window to states to enable them to continue paying for power supplies.

"A delayed payment of 50 percent will not help generation companies meet their obligation to railways and coal. With the RBI allowing deferral for loans to discoms, it’s time for Coal India and Railways to move away from advance payment and allow deferred payment," said Ashok Khurana, Director General of Association of Power Producers'.

Such an arrangement will not be a financial loss to Coal India and Railways, Khurana said.

"They can raise additional working capital for 90-120 days and pass on the additional cost to the generators. If the cash flow is impeded by the consumers and the discoms many of the weak independent power producers would really need to shut down the plants. We have requested the ministry of power to think of emergent liquidity window for discoms and generators to cover the cash deficit in case companies do not get a deferral from coal and railways," Khurana added.

On the renewable energy side, the ministry of new and renewable energy has issued a notification stressing that renewable energy projects have must run status during the COVID-19 crisis and payments must be done by discoms on a regular basis.

“Some of the distribution companies have indicated that they want to invoke the force majeure provision. However, that may not be applicable to renewable energy companies due to the terms and conditions which govern the setting up of a renewable energy project and are clearly set out in the Power Purchase Agreements. It is also prudent to note that as per the law of the land the renewable energy projects have a must-run status. The Ministry of New & Renewable Energy has also issued a clarification on this issue to all the discoms.” said Sumant Sinha, CMD, ReNew Power.

At the end of February 2020, discoms had an outstanding payment of Rs 92,268 crore towards power generation companies of which Rs 23,052 crore is pending against private power producers and Rs 6,917 crore for the renewable energy companies.

Catch our complete coverage on the coronavirus pandemic here.

First Published:Apr 3, 2020 2:32 PM IST