Distribution companies convert long-term power purchase agreements into 500-day zero-interest credit facilities
State distribution companies are delaying payments to wholesale generators until regulatory sanction thresholds approach, effectively converting long-term power purchase agreements into zero-interest credit facilities.
Generators operating under regulated PPAs cannot terminate contracts solely due to payment delays, preventing them from redirecting power to alternative buyers.
Recorded payment delay
The WRPC Supplementary Agenda Notes dated 06.03.2026 document a case involving Ratnagiri Gas & Power Pvt. Ltd. (RGPPL).
The generator currently carries Rs 81 crore in unpaid dues from a single distribution utility.
The delay period recorded in the document is 502 days, exceeding sixteen months.
Cash flow justification
Distribution utilities attribute payment delays to retail tariff deficits and delayed subsidy disbursements.
They also cite the Late Payment Surcharge (LPS) framework, which is intended to compensate generators for payment delays.
Financing gap
However, the regulated surcharge rarely covers the actual borrowing costs generators incur when raising emergency short-term debt to maintain fuel procurement.
Market effect
This dynamic allows distribution utilities to operate using the liquidity of wholesale generators.
Policy question
Unless the Ministry of Power modifies the Late Payment Surcharge Rules to enforce automatic escrow deductions from tariff collections before dues age beyond 90 days, distribution companies will continue to rely on generators as a working capital source.
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