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Crisil Ratings in its latest report has said that new equated monthly instalment scheme introduced by power ministry can help electricity distribution companies (discoms) save a quarter of their additional payouts and clear around Rs 20,000 crore payments to generation firms (gencos) this fiscal (FY23). It noted that under this scheme, overdues, including past Late Payment Surcharge (LPS) as on the cut-off date of June 3, 2022, will be converted into Equated Monthly Instalments (EMIs) that discoms have to pay over 12 to 48 months, based on different slabs.’

The report further said if discoms clear the fresh dues and EMIs on time, going forward, they won't be billed for LPS by gencos. Success of the scheme will depend on two factors, firstly, how discoms are able to enhance their revenues, and secondly, an enforcement mechanism that ensures timely payment to gencos. The scheme aims to provide immediate liquidity to gencos. That's because, along with commencement of payments, the receivables can also be discounted by banks based on the assurance of timely payment of EMIs. This would help free up working capital limits for gencos to buy coal, the prices of which have soared because of geopolitical tensions.

In fiscal 2021, the central government unveiled the Aatmanirbhar Bharat package worth Rs 1.35 lakh crore to clear discom dues. However, its impact was short-lived and most discoms continue to face liquidity challenges following operating losses and their dues remain high at Rs 1.2 lakh crore as on May 31, 2022.