Discoms Won’t Get Power If They Don’t Provide Letters Of Credit To Generators
Power Ministry notifies rules for stricter enforcement of letters of credit for discoms.
Electricity distribution companies won’t be supplied power if they don’t maintain letters of credit, a kind of payment security, as India looks to avoid stress build-up in the power sector.
Power will be scheduled for dispatch only after a discom gives in writing to the appropriate load despatch centre that a letter of credit for the desired quantum of electricity to be drawn from a generating station has been opened, according to a notification uploaded on the Power Ministry’s website yesterday. The intimation has to specify the period of supply.
And if discoms don’t provide the security, they can’t buy power from exchanges and won’t even get supply through short-term open access—that allows heavy users to buy from the market at cheaper rates.
The security mechanism existed in power purchase agreements but was not enforced effectively. As a result, discoms could delay payments to generation companies. Outstanding dues to power producers, according to the government’s Praapti portal, swelled to Rs 35,841 crore as of April. This impacts cash flows of power producers who have to pay for coal, causing stress. The government is already trying to resolve stress for 34 plants with outstanding debt of about Rs 1.8 lakh crore.
The ministry earlier this month decided to enforce the letter of credit system strictly. According to the latest notification, in case of difficulty in security, a discom may pay for at least one day’s power in advance through the electronic mode and inform the respective central, local or state dispatch centre. The quantum of power distributed will be restricted the money deposited, it said.
India Ratings and Research, in an earlier statement, said implementation challenges remain. “Distribution companies (discoms) would have to create LC (letters of credit) for about Rs 300 billion (Rs 30,000 crore) before August 2019, if the circular has to be implemented. Also, clarity on payment of existing dues is still awaited.”