Discoms, which are not in their best health, would have to create LC for about Rs 30,000 crore before August 2019, if the circular has to be implemented, India Ratings had estimated.
About a month after the government approved the implementation of the payment security mechanism, the Union ministry on Wednesday, allowed distribution companies (discoms) to receive power even if they provide advance guarantee for “at-least one day’s purchases of electricity”.
Power minister RK Singh, on June 28, had made it mandatory for discoms to open and maintain adequate letter of credit (LC) as payment security to private power plants. The relaxation comes after sector experts cautioned that the move could push financially weak discoms to report lower than actual power demand or resort to load-shedding.
Discoms, which are not in their best health, would have to create LC for about Rs 30,000 crore before August 2019, if the circular has to be implemented, India Ratings had estimated. The research firm had also said that discoms’ erratic payment behaviour could subject LC issuance to even 100% margin back–up.
“The LC maybe opened as per the power purchase agreement,” a power ministry circular about the procedural guidelines of the payment security system said on Wednesday. “However, the discom may open an LC for a shorter duration say for supply corresponding to one week or fortnight,” the order added. If the discoms finds it difficult to issue an LC, it may make advance payments for one day’s power and receive electricity.
Discoms’ dues to power producers stood at Rs 35,845 crore at the end of April, up 30% from a year earlier, and 58% of these were “over-dues” with payment default of 60 days or more.
The June order also makes sure that discoms cannot arm-twist generators by threatening to buy power from alternative sources if IPPs choose to curtail supply after payment default. “The dispatch (to the discom) shall stop once the quantum of electricity under LC is supplied” and load dispatch centres, as mandated by the Electricity Act, 2003, will also have to ensure that defaulting discoms cannot procure power either from the spot exchanges, or through short-term open access.