DISCOMs Feel the Heat: No Letter of Credit, No Advance Payment, No Power

Letters of Credit to be Opened Against Power Purchases from August 1, 2019


The Ministry of Power has issued procedural guidelines for the scheduling of power to distribution companies in case of non-maintenance of the line of credit under the payment security mechanism.

Recently, Minister for Power R. K. Singh had announced that it would be mandatory for DISCOMs to open and maintain adequate Letters of Credit (LC) as the payment security mechanism under power purchase agreements (PPAs).

According to the guidelines, power will be scheduled for dispatch after a written communication is provided to the load despatch center (LDC) that the letter of credit for the power desired to be supplied has been opened. The communication must specify the duration of supply. This communication will be provided by the DISCOM and confirmed by the power generator.

The Ministry of Power has provided that the letter of credit can be opened according to the terms of the PPA. If the DISCOM wishes, it can open a letter of credit for a shorter duration, say for a week or fortnight. In such a scenario, the DISCOM must communicate the development to LDC, which will schedule the power.

The ministry has specified that in case a DISCOM is facing trouble opening the line of credit, it can pay in advance the amount corresponding to one day’s supply. After being informed, the LDC will schedule the power, but it will be limited to the amount for which payment has been made. In case of non-maintenance of a letter of credit or advance payment by the DISCOM, the power supply will not be scheduled.

In its communique, the Ministry of Power has stated that the regional load despatch center (RLDC) and national load despatch center (NLDC) can temporarily review the schedule of power supply to maintain grid security.

The generating company or DISCOM must inform the LDC as soon as the letter of credit is renewed or opened or in case an advance payment has been made. In such cases, the power supply will be restored by the LDC within 24 hours.

During a given period of non-scheduling of power supply, the generating project must continue to provide scheduling related information by 6 a.m. every day on a day-ahead basis. By 8 a.m., RLDCs and SLDCs must publish the list of entities for respective regions along with the amount of non-scheduled power. While scheduling power for entities, RLDCs and SLDCs must restrict the schedules of the concerned DISCOM (which hasn’t paid or opened the letter of credit).

The Ministry of Power has also specified that the generating project and DISCOM must strictly adhere to the schedules and avoid deviations to ensure grid operation. It has also been decided that if the regulation of power supply is implemented, the NLDC will exclude such generating stations from reserve regulation ancillary services.

Moreover, the LDC will ensure that the non-paying entity has no access to procure power through power exchanges or short-term open access.

The letters of credit will be opened against power purchases made from August 1, 2019, onwards. The payment of bills for state-owned generating stations will be determined by respective state governments.

When contacted, a government official said, “The government wants to eradicate the problem of non-payment of bills leading to the creation of non-performing assets. In some states, we have witnessed that the DISCOMs are delaying the payments by almost a year or so. Such DISCOMs do not deserve extra power to be supplied before the clearance of bills. Earlier, there was no procedure in place. Now, this will take care of defaults on the part of DISCOMs. If they do not pay before, they won’t get power on time. No letter of credit, no power. No advance payment, no power.”

Mercom previously reported that payment delays are becoming a problem for solar and wind project developers in India, especially in Andhra Pradesh, Tamil Nadu, and Telangana. Some instances in Madhya Pradesh and a DISCOM in Karnataka are also being blamed for long payment delays to developers.


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