Discoms will have to furnish unconditional Letters of Credit to receive power: Govt

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Published: August 10, 2019 1:02:51 AM

Delaying payments to generators has helped cash-strapped discoms manage their working capital cycles, meet short-term obligations and avoid costly working capital loans.

Discoms, Letters of Credit, power distribution companies, payment security mechanism, economy newsWhile four South Indian states account for 42% of total over-dues of discoms across India, Uttar Pradesh alone makes up another 22%.

The Union power ministry said on Friday that power distribution companies (discoms) would have to furnish ‘unconditional Letters of Credit’ to receive power from generating stations. The development comes after the ministry was informed about certain discoms trying to bypass the recently introduced payment security mechanism which makes it mandatory for discoms to open and maintain adequate letter of credit (LC) to power plants, starting August 1.

According to sources, discoms in Rajasthan and Telangana had opened conditional LCs which can be encashed by power generators only if they are authorised by the state, diluting the whole purpose of payment security mechanism. Dues from discom to power producers were up 28% at Rs 38,884 crore at May-end. Out of this, overdues — payment default of 60 days or more — was of Rs 22,313 crore (Out of this, Rs 2,728 crore is considered as disputed). While four South Indian states account for 42% of total over-dues of discoms across India, Uttar Pradesh alone makes up another 22%.

According to data available with the power ministry’s ‘praapti’ portal, private power producers to which discoms owed most over-dues at May-end were Adani Power (Rs 3,202 crore), GMR Energy (Rs 1,734 crore), Sembcorp Energy (Rs 1,075 crore) and Tata Power (Rs 1,123 crore). NTPC’s unpaid invoices to discoms totalling Rs 4,661 crore have crossed their due dates.

Delaying payments to generators has helped cash-strapped discoms manage their working capital cycles, meet short-term obligations and avoid costly working capital loans. Discoms’ financial losses stood at Rs 28,369 crore at the end of FY19, up 88.6% year-on-year. Crisil Research recently said that the LC mechanism would deprive discoms of this leeway, and might lead to a further rise in their annual interest burden of Rs 2,500-3,000 crore.

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