VIJAYAWADA: Union Power Ministry’s directive to open and maintain adequate Letter of Credit (LC) as Payment Security Mechanism under Power Purchase Agreements (PPAs) by Discoms, before purchasing power from August 1, appears to have come as a welcome relief to the Independent Power Producers (IPPs), especially in the private sector.
The Discoms across the country already owe thousands of crores to IPPs, pushing them into severe financial stress and the new directive may help them recover money for future supplies in advance.
The status of payments for outstanding dues by Discoms in Southern India are worse than in the rest of India and account for more than 50 per cent of the total dues of Discoms across India.
The Discoms of four leading southern states – Telangana, Karnataka, Tamil Nadu and Andhra Pradesh– cumulatively have an outstanding of Rs 18,489 crore as on April 2019. According to the directive by the Power Ministry, the distribution companies had to open bank guarantees for Power Plants to avoid outages. If implemented in letter and spirit, the Centre’s directive to stop power supply, without payment guarantee, from August 1 will transform the ailing power sector.
Incidentally, the Andhra Pradesh Government on Thursday released Rs 556.78 crore directly to the Central Generating Stations, towards Payment Security Mechanism notified by the Government of India. Andhra Pradesh Discoms owe Rs 978 crore to the power generation companies in both public and private sector.
A total of Rs 35,845 crore has been outstanding amongst 58 Discoms across India. The total outstanding dues of Telangana Discoms to power generators (thermal + solar) has risen to Rs 11,233 crore.
“The recent Power Ministry order, enforcing Discoms to open a Letter of Credit or make advance payments for future supplies, shows that the government is serious in addressing the long-pending problem of non-payment of bills by Discoms that has been making power generation units into NPAs. In some states, Discoms have delayed payments for more than a year. The LC order, if enforced properly, will help put a break on mounting Discom dues. Upon failure to release payments, the load dispatch centre can curtail power supply to Discoms flowing through the Inter State Transmission System (ISTS) and also prevent it from procuring power through the exchange. If properly implemented, this should help in improving the payment issue from going forward,” said an independent analyst, monitoring power sector, on condition of anonymity.