LCs for power purchase: Govt to contest Andhra HC order in SC, says Power Minister RK Singh

By: |
March 5, 2020 7:20 AM

The government would move the SC against the Andhra HC October 16, 2019 interim, ex parte order, staying the Union power ministry’s August 1 fiat making it mandatory for discoms to abide by the letters of credit (LCs) mechanism.

Discoms owed `84,667 crore to power generators at the start of August, 2019.

The Centre is leaving no stone unturned in its efforts to induce payment discipline among state-run electricity distribution entities (discoms). Power and renewable energy minister RK Singh told FE that the government would move the Supreme Court soon against the Andhra Pradesh High Court’s October 16, 2019 interim, ex parte order, staying the Union power ministry’s August 1 fiat making it mandatory for discoms to abide by the letters of credit (LCs) mechanism contained in the power purchase agreements (PPAs) for purchase of electricity from gencos.

Though the court’s order was specific to the LCs with regard to those renewable units from which Andhra Pradesh buy power and was in view of the fact the LC condition was waived by these units in the relevant PPA, it ran contrary to the Centre’s intent.

“An interim order should have been heard and decided upon within 14 days as per the Constitution. They (the court) have not done that,” Singh said. All states except Andhra Pradesh were following the LC mechanism, the minister added. According to Singh, invocation of the LC provision has indeed helped in prompting discoms to pay the gencos in time for power purchased.

“After we have introduced the LC mechanism, current dues are getting paid by discoms. For the first time after decades, there are (no fresh unpaid dues). Whatever was the outstanding amount we introduced the LC system on August 1 were the legacy dues. These are being carried on and the delayed payment surcharges are being added. Some states have approached us seeking some leeway in repaying (the pre-August dues). We will work out ways and methods of helping these states,” he said.

Discoms owed `84,667 crore to power generators at the start of August, 2019. At January-end, the unpaid dues were up 2.8% at `87,025 crore. To recall, AP’s Jaganmohan Reddy government had decided to revisit the PPAs with wind and solar developers and revise the tariff structure alleging irregularities by the previous (Chandrababu Naidu) government. In its interim order, the AP High Court allowed the state’s discoms to pay solar and wind power units at `2.44 per unit of electricity, which is the lowest price discovered under renewable auction so far·till a committee reached a finding on the Reddy government’s allegations of corruption in the PPA process.

The court also stopped the power ministry from disallowing AP-based discoms to buy power through the open access system and on the power exchanges. It kept the ministry’s order in abeyance for a period of three weeks and posted the case to November 5, 2019, for next hearing. A petition was earlier filed by discoms of Andhra Pradesh challenging the order of the Union government n this regard stating that it is not possible to issue LCs to the solar and wind power producers in the wake of financial crisis in the discoms.

“The action of the Union government amounts to rewriting the terms of the PPA between discoms and the power producers,’’ the state government argued. The MNRE had earlier issued directions to Andhra Pradesh, through Power System Operation Corporation under the power ministry, to the state load dispatch centre asking it to provide renewable energy developers with LCs by October 15.

If it failed to do so, according to the order, it was to face the prospect of losing the right to transact in power exchange and short term open access. Effective August 1, it has been mandatory for discoms to open/maintain bank guarantee to buy power from gencos.

 

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