UP: Discoms told to maintain letter of credit

The Central government has made it compulsory for power distribution companies to open and maintain a Letter of Credit (LC) as a mechanism to ensure timely clearance of bills of power generating companies.

The move, officials feel, may add to the woes of Uttar Pradesh’s cash-strapped power discoms.

The order, issued by the Union power ministry to all the states on Friday, says the discoms are duty-bound to open and maintain LC under the power purchase agreements (PPAs) they enter into with various power generating companies.

“The Letter of Credit will ensure that discoms do not delay the payment of the bills that are raised against them for purchase of power they sell to consumers,” government sources here said.

The order issued under the signature of undersecretary, Debranjan Chaterjee, asks the regional load dispatch centers (RLDCs) and the state load dispatch centres (SLDCs) not to schedule and dispatch electricity (carry power from a plant to the grid) for a discom that does not have the LC with adequate funds.

“It has been seen that despite the statutory provisions under the Electricity Act, the LC is not being given and on account of this there is huge outstanding of unpaid bills. This makes it difficult for generators to pay for the fuel which has to be prepaid to continue generation.

They also have to pay to the railways for transportation of coal rakes,” points out the letter.

It further says that if this situation persists, the generators will not be able to pay for fuel and coal affecting power generation which will result into load shedding for citizens.

The UP discoms, according to sources, owe around Rs 20,000 crore dues to the generation companies like the Utpadan Nigan, NTPC, Reliance Energy, Bajaj etc.

The order says that the RLDC will dispatch electricity only up to the quantity equivalent to the value of Letter of Credit and the dispatch will stop once the quantum of electricity is supplied under the LC.

The generation company concerned will be entitled to encash the LC after the expiry of grace period (for clearing bills) of 40-60 days as provided under the PPA.

In the event the power is not dispatch for any such reason, the doscom will continue to pay fixed charges to the generating company concerned even without taking any electricity from it.

The discoms will also be liable to pay compensation to the generation companies if the RLDC/SLDC is not able to schedule and dispatch power due to a discom not opening and maintaining the LC with adequate credit.

“This order will certainly mount a lot of pressure on the UPPCL and its discoms in UP to streamline their system of payment of bills to the power generating companies adding to their financial difficulties,” sources said.