News

State owned gencos out of payment security mechanism Power Ministry

New Delhi: State-owned power generating plants would not be covered under the new payment security mechanism which mandates offering a letter of credit by distribution companies to electricity generators, the Union Power Ministry said Wednesday. The ministry issued the statement after some states sought clarification on the payment mechanism under the power purchase agreements approved by the Centre last month. 

The payment security mechanism mandates that distribution companies would offer a letter of credit to generating firms as an assurance of payments for the supply of power. 

The new system would be rolled out from August 1. 

"The state-owned power generating stations are not covered under the order issued on June 28, 2019, and its subsequent amendments thereof. The bill payments of these state-owned power generating stations may be as decided by the respective state governments." 

The ministry also clarified that the payment security mechanism would be implemented from August 1, 2019. 

Independent power producers have been demanding to put in place a payment security mechanism to reduce stress in the sector. The high-level committee headed by Cabinet Secretary P K Sinha also recommends putting in place a payment security mechanism for generating firms. 

The PPAs 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, the earlier order had said.