Discoms start offering letter of credit for power purchases as payment security

Our Bureau New Delhi | Updated on August 01, 2019

State government controlled power distribution companies (Discoms) have started offering letters of credit (LC) for power purchases as a payment security after the Centre mandated them to do so from August 1.

Officials in the know said that Minister of State (Independent Charge) for Power and New and Renewable Energy RK Singh reviewed the situation and all State and Union Territory governments had agreed to implement the Centre’s order.

The Discoms are said to have been offering LCs for power purchases spanning from a week to a month in advance. These LCs will be invoked if the Discom defaults in payments to the power generation company (Genco) beyond the 45-day or 60-day grace period for clearing dues, as provided in the power purchase agreement (PPA).

In June, the Power Ministry came out with a statement saying it was making it mandatory for power distribution licensees to open and maintain adequate letters of credit as a payment security mechanism under PPAs.

As per the order, National, Regional and State Load Dispatch Centres are directed to dispatch power only after they are told by the Genco and the Discoms that an LC for the desired quantum of power has been opened and copies have been made available to the concerned generating company.

The dispatch centres will be informed about the period and quantity of power supply. The dispatch shall stop once the quantum of electricity under the LC has been supplied.

The Centre then relaxed some provisions of the order and exempted Discoms from offering LCs before procuring electricity from State government-run power generating stations.

Published on August 01, 2019

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