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The Impact Of COVID-19 On The Power Sector
The Ministry of Power issued various directions in this regard recognising the need of continuous generation of power, its transmissions and distribution.
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Power is one of the essential thing in everyday life and without power, it is impossible to sustain. World Health Organization (WHO) declared Covid-19 as pandemic, thereafter in March 2020, the Government of India and other State Governments taken various measures to contain the spread of Covid-19 in India. One of the main step in this regard is lockdown the Country from 25.03.2020 for a period of 21 days.
The Ministry of Home Affairs on 24.03.2020 issued Order inter alia detailing the restrictions imposed. However, the said Order provides for certain exceptions for the essential services, where the sector will run as it is, however, with minimum strength and maintaining various health directives. Power falls within such an exception. During this time of lockdown, there is consistent need of power not only for the essential health care institutes and services, but for the households and also for maintaining the atmosphere for work from home.
The Ministry of Power issued various directions in this regard recognising the need of continuous generation of power, its transmissions and distribution. The generating companies/transmission companies and Discoms are bound to follow the same. The Communication dated 25.03.2020 issued by the Director Thermal, Ministry of Power is regarding essential operation of power generation utilities and permission for material movement needed by them during the lockdown. The Communication dated 28.03.2020 in the same issue is regarding availability of fuel for power generation.
However, the impact on the power sector came in terms of its financial models. For example, in thermal power sector, normally, the generating company has to pay in advance to procure coal and there is gap of round 60 – 90 days to recover the money from Discoms.
On 27.03.2020 the Reserve Bank of India issued certain directives regarding moratorium. The Ministry of Power, considering the urgency to procure power uninterruptedly, issued certain directions, through various Communications/Orders. The Ministry of Power vide its Order dated 27.03.2020, directed that wherein payment security is established by Discoms for 50%, the generating companies will continue to supply power. On 28.03.2020, the Ministry of Power issued directions to Central Electricity Regulatory Commission (CERC) under section 107 of the Electricity Act, 2003 regarding Late Payment Surcharges (LPS). The State Governments also issued directions to respective State Electricity Regulatory Commissions (SERC) under section 108 of the Electricity Act, 2003.
Based on these directions, various Discoms started issuing Notices to the generating companies inter alia invoking force majeure or unilaterally waiving Late Payment Surcharges. In the renewable Energy sector, as it enjoys preferential tariff, various Discoms even wrote to them to stop supplying power during the force majeure event.
All these steps by the Discoms create panic situation in the power sector and therefore, the Appropriate Ministries/Regulators were required to issue clarifications/orders. MNRE was constrained to issue directives regarding Renewable Energy (RE) inter alia directing the Discoms to continue power purchase from RE Plants as RE Plants are having ‘must run’ status and also directed for payment of dues as per respective agreements.
Similarly, CERC or various SERCs passed Orders regarding the amount of LPS and its applicability, directions regarding payment of earlier dues. The LPS reduction for the Invoices becomes due within the period 24.03.2020 – 30.06.2020, the CERC has reduced the LPS to 12%. The SERCs have taken independent decisions, which provides for LPS ranging from 6% to 12%. The CERC and SERCs also make it clear that where the tariff is fixed based on competitive bidding, the Discoms are bound to follow the respective Power Purchase Agreement.
Therefore, although in power sector, the generating companies are bound to generate and supply electricity due to the mandatory directions by Governments, however, in power sector, there will be a huge financial implications as there will be problem of liquidity. The generating companies (in most of the cases) has to purchase in advance the input material and there is uncertainty regarding receiving payment from Discoms, as Discoms are also facing similar financial crisis. The CERC and SERCs have also asked for suggestions regarding stimulus packages and the power sector is hopeful that the Government will come up appropriate stimulus package, so that all can win the fight against Covid-19, together.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.