Ministry of Power
Power Minister Shri RK Singh approves implementation of Payment Security Mechanism for purchase of power by DISCOMs as mandated by law
Distribution Licensees required to open and maintain adequate Letter of Credit  as Payment Security Mechanism under Power Purchase Agreements from 1st August, 2019
The step aimed at bringing discipline and making the sector viable
Shri RK Singh, Union Minister of State for Power and New & Renewable Energy  and Skill Development & Entrepreneurship in a major decision has approved the proposal to make it mandatory for distribution licencees to open and maintain adequate Letter of Credit  as Payment Security Mechanism under Power Purchase Agreements. Speaking about the decision, Shri Singh said that, “This will change the system and the sector will become viable.”
Accordingly, Ministry of Power has issued the following order today -
1.0 Under the Electricity Act 2003, Regional Load Despatch Centres  and State Load Despatch Centres  are cast with the statutory responsibility to ensure that that the supply of electricity is made in accordance with the contracts.
2.0 Section 28   of the Electricity Act 2003 provides that the Regional Load Despatch Centre shall be responsible for optimum scheduling and despatch of electricity within the region, in accordance with the contracts entered into with the licensees or the generating companies operating in the region.
3.0 Similarly as per provisions of Section 32  the State Load Despatch Centre shall be responsible for optimum scheduling and despatch of electricity within a State, in accordance with the contracts entered into with the licensees or the generating companies operating in that State.
4.0 The Power Purchase Agreements have the provision regarding maintenance of adequate Payment Security Mechanism mainly in the form of Letters of Credit by the Distribution Licensees/ Procurers of Power. A robust Payment Security System requires adequacy and validity of Letter of Credit to cover the payments due on account of drawal of power.
5.0 It has been seen that despite the above provisions, the Letters of Credit are not being given and there is huge outstanding on account of unpaid power bills. This makes it difficult for the Generators to pay for the fuel, which has to be pre-paid, to continue the generation. The Generators are also required to pay to the Railways in advance for the rakes. If this situation persists, the Generators will not be able to pay for fuel/transportation leading to shortfall in generation of electricity. There will thus be wide spread load shedding on account of lack of generation. It is essential therefore that all the provisions mentioned above are implemented strictly. NLDC & RLDC are therefore directed as follows:
- In accordance with Section 28  , the NLDC & RLDC shall despatch power only after it is intimated by the Generating Company and /Distribution Companies that a Letter of Credit for the desired quantum of power has been opened and copies made available to the concerned Generating Company.
- The intimation to NLDC and RLDC shall specify the period of supply.
- RLDC shall dispatch electricity only up to the quantity equivalent of value of Letter of Credit.
- The dispatch shall stop once the quantum of electricity under LC is supplied.
- The concerned generating company shall be entitled to encash the LC after expiry of grace period, i.e. 45 to 60 days as provided in the PPA.
- In the event power is not dispatched for any reason given above, the Distribution licensee shall continue to pay the Fixed Charge to the Generating Company.
6.0 It shall also be ensured by the Load Despatch Centre that the regulated entity, during the period of regulation, has no access to procure power from the Power Exchanges and they shall not be granted Short Term Open Access .
7.0 In case scheduling and despatch of power produced by any generator is not done due to non-opening of Letter of Credit by the Distribution licensee, then the Distribution licensee would be liable to pay compensation to the generator as per the terms of Power Purchase Agreement or Power Sale Agreement, as the case may be, the distribution licensee has entered in with the generator.
8.0 NLDC/ RLDC/SLDC shall carry out such duty cast under Electricity Act, 2003 from 01.08.2019.