Daily Prelims Notes 26 May 2022

Daily prelims Notes

26 May 2022

Table Of Contents

1. Late payment surcharge
2. Sugar Export ban

1. Late payment surcharge

Subject: Economy

Section: Energy

Context:

The government is working on a scheme to liquidate the past dues of Discoms.

Outstanding dues:

According to data available on the PRAAPTI portal, as on May 18, 2022, the Discoms’ overdues (excluding disputed amounts and Late Payment Surcharge (LPSC)) stood at ₹1,00,018 crore and LPSC dues at ₹6,839 crore.

Details of the scheme:

• The Discoms will be allowed to pay off dues in up to 48 monthly installments,
• A onetime relaxation on the outstanding dues wherein the amount would be frozen without further imposition of LPSC.
• In case of delay in payment of an installment by a Discom, the LPSC shall be payable on the entire outstanding dues, which otherwise were exempted.

Concept:

Late payment surcharge refers to the charges payable by a distribution company (DISCOM) to a generating company or electricity trader for power procured, or by a user of a transmission system to a transmission licensee on account of delay in payment of monthly charges beyond the due date.

As per the ‘Late Payment Surcharge Rules, 2021’ the late payment surcharge will be payable on the outstanding payment after the due date at the base rate (pegged to SBI’s Marginal Cost of Lending Rate (MCLR)) of late payment surcharge for the first month of the default. The late payment surcharge rate for the successive months will increase by 0.5% for every month of delay. The surcharge should not be higher than 3% of the base rate at any time.

The rule will be applicable when the rate of late payment surcharge payable is not higher than the rate specified in the agreement for the purchase or transmission of power. Further, a DISCOM which has a late payment surcharge outstanding against a bill after the expiry of seven months from the due date will be debarred from procuring power from a power exchange or grant of short-term open access until such bill is paid.

PRAAPTI:

PRAAPTI (Payment Ratification And Analysis in Power Procurement for bringing Transparency in Invoicing of Generators),is a App and web portal developed to bring transparency in power purchase transactions between Generators and Discoms.

It was launched in 2018 by the Ministry of Power.

•  It will capture invoicing and payment data for various long term Power Purchasing Agreements (PPAs) from power generation companies (generators).
• It will help stakeholders in getting month-wise and legacy data on outstanding amounts of Discoms against power purchase.
• It will also allow users to know the details related to payments made by Discoms to power generators and when they were made.
• It will also enable consumers to evaluate financial performance of their Discoms in terms of payments being made to generators.
• It will also help DISCOMs and GENCOs to reconcile their outstanding payments.
• It will facilitate relative assessment of various State DISCOMs on ease of making payments to various generators and will also help make transactions in the power sector more transparent.

2. Sugar Export ban

Subject: Economy

Section: Agriculture

The Centre on Tuesday announced that sugar (raw, refined and white sugar) exports from June 1 would be allowed only through permits and fixed a maximum quantity of 10 mt for this season (October-September).

Details:

The notification issued by the Directorate General of Foreign Trade has moved sugar exports from “free” to the “restricted” category.

With effect from June 1, Sugar mills and exporters need to take approvals in the form of an export Release Order (RO) from the Directorate of Sugar in the Ministry of Food and Public Distribution.

Objective:

• These steps were taken to maintain “domestic availability and price stability of sugar”.
• The decision was in the wake of “unprecedented growth in exports of sugar” and the need to maintain sufficient stock of sugar in the country. It is for the first time in six years that the Centre is regulating sugar exports.

Exemption:

• Sugar mills and traders who have specific permissions from the government will only be able to export sugar (including raw, refined and white sugar) till 31st October, 2022 or until further orders.
• Additionally, the restriction is not applicable for exports to the European Union (EU) and the United States under CXL and tariff rate quota respectively.

Fall out of curbs:

1. The present curbs would ensure the government keeps a tab on sugar stock real-time and ensures there is no shortage at the start of the next season (October- December).
2. There will a decrease in income of the sugar cane cultivating farmers. Already as a first reaction to the curbs there was a Rs.50 per tonne drop in ex-mill prices.

Hasty moves like this will impact investor sentiment and credibility of India as a food security provider to the globe. Certainty in policy is v vital for boosting agri-exports and doubling

Concept:

Tariff-rate quota (TRQ) (also called a tariff quota) is a two-tiered tariff system that combines import quotas and tariffs to regulate import products.

A TRQ allows a lower tariff rate on imports of a given product within a specified quantity and requires a higher tariff rate on imports exceeding that quantity. For example, a country might allow the importation of 5,000 tractors at a tariff rate of 10%. However, any tractor imported above this quantity would be subject to a tariff rate of 30%.

Unlike a simple quota system, a TRQ regime does not restrict the quantity of imported products. The “in-quota commitment” is complemented by an “out-of-quota commitment”. The out of quota commitment does not set any limit on the quantity or value of an imported product, but instead applies a different, normally higher, tariff rate to that product. Imports face this higher duty rate once the in-quota quantity or value has been reached, or if any requirement associated with the “in-quota commitment” is not fulfilled

A TRQ is generally used to protect domestic production by restricting imports. Under that regime, the quota component combines with a specified tariff level to provide the desired level of protection. In many cases, imports above the threshold may face a prohibitive “out-of-quota” tariff rate.

Sugar industry is an important Agro-based industry that impacts rural livelihood of about 50 million sugarcane farmers and around 5 lakh workers directly employed in sugar mills. India is the second largest producer of sugar in the world after Brazil and is also the largest consumer.

Today Indian sugar industry’s annual output is worth approximately Rs.80,000 crores. There are 732 installed sugar factories in the country as on 31.07.2017, with sufficient crushing capacity to produce around 339 lakh MT of sugar.

Sugarcane

• Temperature: Between 21-27°C with hot and humid climate.
• Rainfall: Around 75-100 cm.
• Soil Type: Deep rich loamy soil.
• Top Sugarcane Producing States: Uttar Pradesh > Maharashtra > Karnataka > Tamil Nadu > Bihar.

Sugarcane Pricing:

Sugarcane prices are determined by:

• Central Government: Fair and Remunerative Price (FRP)
  • The Central Government announces Fair and Remunerative Prices which are determined on the recommendation of the Commission for Agricultural Costs and Prices (CACP) and announced by the Cabinet Committee on Economic Affairs (CCEA).
    • CCEA is chaired by the Prime Minister of India.
  • The FRP is based on the Rangarajan Committee report on reorganizing the sugarcane industry.
• State Government: State Advised Prices (SAP)
  • The SAP is announced by the Governments of key sugarcane producing states.
  • SAP is generally higher than FRP.