Andhra High Court Stays Center’s Order, Gives Relief to DISCOMs Over Letters of Credit

Andhra Pradesh’s electricity distribution companies approached the high court for relief after receiving letters from POSOCO restricting them from approaching power exchanges

October 17, 2019


The Andhra Pradesh High Court has issued a stay order on the central government’s proceedings against electricity distribution companies (DISCOMs) in Andhra Pradesh for not providing letters of credit to power generators in line with the order from the center.

In June 2019, the central government approved a proposal to make it mandatory for distribution licensees to open and maintain adequate letters of credits (LC) as the payment security mechanism under power purchase agreements.

In the latest development, Andhra DISCOMs filed a petition in the high court after they received a letter from the Power System Operation Corporation of India (POSOCO). The letter stated that if state utilities do not issue LCs to wind and solar developers, they are liable to be banned from procuring power from exchanges and unable to receive short-term open access approvals. POSOCO also sent similar letters to the load despatch centers in the state.

However, the Andhra Pradesh high court has now imposed a stay on the proceedings for three weeks, a source aware of the case told Mercom.

The DISCOMs have argued that the central government is a third party with respect to the power purchase agreements signed with the generators. Further, they also stated that the mandatory condition of providing LCs to developers would amount to altering the signed power purchase agreements (PPAs).

The next hearing for this case is scheduled to be held in the first week of November.

It is galling that DISCOM’s in Andhra Pradesh are arguing that providing LCs to developers amounts to altering PPAs when the state is trying to renegotiate solar and wind PPAs signed years ago and curtailment by DISCOMs is rampant in the state.

This action directly challenges Power Minister RK Singh’s move to make it mandatory for distribution licensees to open and maintain adequate LC as payment security mechanism under power purchase agreements.

Payment delays are becoming a pain point for solar and wind project developers in Andhra Pradesh, Tamil Nadu, and Telangana.

Last month, Mercom analyzed if letters of credit would prove to be a shot in the arm for developers.

In related news, The National Solar Energy Federation of India has requested the Union Power Minister R.K. Singh to bail out solar generators from the ongoing renewable energy dispute in Andhra Pradesh. The federation has underlined in the letter that solar projects in Andhra Pradesh have been suffering due to rampant curtailment of solar generation since July 2019.

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