Relief For Discoms: Letter Of Credit Not Needed For State-Owned Power Producers
The relief comes even as outstanding dues by power discoms to power generation companies swelled to Rs 38,881 crore by May 2019.
The Ministry of Power has clarified that electricity distribution companies need not give letter of credit to state-owned power generators.
This comes even as outstanding dues by discoms to power generation companies swelled to Rs 38,881 crore as on May 2019, according to the ministry’s Praapti portal.
The ministry, in a notification last week, said 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.
Some states had sought clarification on applicability of letter of credit order and whether state-owned power generating stations are covered under this order.
In a letter to chairman and managing director of Power System Operation Corporation Ltd., the ministry said letter of credit shall be opened against power purchases made after August 1.
“The state-owned generating stations are not covered under the order dated June 29 and its subsequent amendments thereof. The bill payment for these state-owned generating stations may be decided by the respective state governments.”
Power generated by state-run producers stood at 1,05,076.86 megawatt as on June 30, according to Central Electricity Authority of India. The overall power generation in the country stood at 3,57,875.48 MW.
India Ratings and Research had earlier said that the letter of credit order will have implementation challenges. “Letters of credit for about Rs 300 billion (Rs 30,000 crore) will be required to comply with the Ministry of Power’s order,” Siva Subramanian, director of global infrastructure at India Ratings and Research, told BloombergQuint. “Does the banking system have the capacity to create it in a short span of time?” he had asked.
Clarity on payment of existing dues of power generators is still awaited, the rating and research agency had said. “Given the erratic payment behaviour of discoms, banks could issue LCs subject to 100 percent margin back-up. The standalone credit profiles of several discoms are frail; therefore, LC issuance by a bank could be a litmus test for discom,” it had said.