Payment guarantees for power purchase: DISCOM Efficiency

Minister of state for power and new renewable energy has approved the proposal to make it mandatory for distribution licensees to open and maintain adequate letter of credit as payment security mechanism under power purchase agreements. The order, applicable from August 1, will ensure curbing adding further to the outstanding bills of Rs 41,747 crore by distribution companies.

The electricity dispatch shall stop once the quantum of electricity under the letter of credit is supplied. The concerned generating company shall be entitled to en-cash the letter of credit (payment) after expiry of grace period, i.e. 45 to 60 days as provided in power purchase agreement. In the event power is not dispatched for this reason, the distribution licensee shall continue to pay the fixed charge to the generating company and during the period of regulation the DISCOM will not have access to procure power from the power exchanges and they shall not be granted short term open access, the statement said.
Indian DISCOMS spending approx. ₹90,000 Crore annually as Employee, Administrative and Other expenses