NEW DELHI: Cracking the whip on power distribution companies (discoms) in order to discourage delayed payments to generating firms (gencos) and enforce discipline in discoms, the Power Minister on Friday has implemented a payment security mechanism for purchase of electricity under which discoms will no longer be able to get away without paying for the power they procure.
Under the new mechanism, it is mandatory for discoms to open and maintain adequate LCs (letters of credit) as payment security mechanism under power purchase agreements (PPA) for buying electricity from gencos effective from August 1, 2019. “This will change the system and the sector will become viable,” the Minister of state for power and new renewable energy, RK Singh, said in a statement.
The move empowers the nodal agency National Load Dispatch Centre (NLDC) and its regional units to limit the flow of power to the quantum and period covered by the LCs and also cut supply in case the discoms fail to furnish LCs. These centres will also prevent discoms from purchasing short-term power from open market or sourcing power from exchanges during the period covered by the LCs.
In case of default by discoms, gencos can encash the LC after the grace period of 45-60 days as per the PPA terms. The Centre has also approved compensation to be paid by discoms to the gencos in case of any deviation from the scheduling and despatch of power.
Calling it a bold move which can address the almost four-decade-old issue of discoms indiscipline and also the main cause for stress in the power sector, experts pointed out that there will be strong resistance from states like Uttar Pradesh, Tamil Nadu and Rajasthan and the Centre will have to withstand the pressures arising out of power supply disruptions.
“A bold and innovative step to put an end to the decades-old problem of non -payment for power by some delinquent states. States may oppose this step but they need to recognise that they cannot keep on buying power without paying and make generators default in their debt obligations and payments towards their coal and railways payments causing curtailments in power production. With receivables touching Rs. 40,000 crore, it was unsustainable and such a step was the need of the hour,” said Ashok Khurana, director general, Association of Power Producers.