The legacy dues that power distribution companies (Discoms) owe to generation companies (Gencos) will be cleared in less than a year from now, Minister of State (Independent Charge) for Power and New and Renewable Energy, RK Singh, said.

“With the Letter of Credit (LC) system in place, the generators are now confident of getting paid for their power supplies. That still leaves the legacy dues [before the LC system kicked in], which is a challenge. We are working out a timeframe of 8-9 months for it, so that the Discoms can make staggered payments over that period. If they don’t, we will put in place systems to make sure that the payment is made. It can be a number of mechanisms such as regulating power supply,” Singh told BusinessLine in an interview.

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“We are drafting the legislation and it will be out within 7-10 days. The legacy dues are estimated to be close to ₹45,000 crore. They will have to be paid, else regulation will start,” Singh said.

In June this year, the Ministry of Power approved a proposal to make it mandatory for distribution licencees to open and maintain adequate LC as payment-security mechanism under the power purchase agreements. Discoms were mandated to make provision for prepayment for power purchases or to get the banks to guarantee clearing of dues in the event of a default. This assured payments for future purchases but there was not much clarity on the pending payments.

The LC provision was already in the law but was not being implemented. Delays and non-payments by Discoms made it difficult for the generators to pay for the fuel, which has to be pre-paid, to continue the generation. The generators are also required to pay the Railways in advance for the rakes. If this situation persists, the generators will not be able to pay for fuel/transportation, leading to shortfall in generation of electricity, an official statement had said.

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