Payment Security Mechanism for Power Purchase by DISCOMs Approved

Payment Security Mechanism for Power Purchase by DISCOMs Approved

RK Singh has approved the proposal to make it mandatory for discoms to open and maintain adequate LC as Payment Security Mechanism under PPAs

Payment Security Mechanism Approved

RK Singh, Union Minister of State for Power and New & Renewable Energy (IC) has approved the proposal to make it mandatory for discoms to open and maintain adequate Letter of Credit (LC) as Payment Security Mechanism (PSM) under Power Purchase Agreements (PPA).

Speaking about the decision, the Minister said, “This will change the system and the sector will become viable.”

Accordingly, Ministry of Power has issued that the PPAs have the provision regarding maintenance of adequate PSM mainly in the form of Letters of Credit by the Discoms/ Procurers of Power. A robust Payment Security System requires adequacy and validity of LC to cover the payments due on account of drawal of power.

However, it has been observed that despite the above provisions, the LCs 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.

If this situation persists, the generators will not be able to pay for fuel/transportation leading to a shortfall in the generation of electricity. There will thus be widespread load shedding on account of lack of generation.

In this regard, the National Load Dispatch Centres (NLDC) and the Regional LDC have been directed as follows:

i. The NLDC & RLDC shall despatch power only after it is intimated by the gencos and/discoms that an LC for the desired quantum of power has been opened and copies made available to the concerned gencos.

ii. The intimation to NLDC and RLDC shall specify the period of supply.

iii. RLDC shall dispatch electricity only up to the quantity equivalent of the value of LC.

iv. The dispatch shall stop once the quantum of electricity under LC is supplied.

v. The concerned gencos shall be entitled to encash the LC after the expiry of the grace period, i.e. 45 to 60 days as provided in the PPA.

vi. In the event power is not dispatched for any reason given above, the Discom shall continue to pay the Fixed Charge to the Gencos.

In case scheduling and despatch of power produced by any generator is not done due to non-opening of LC by the Discom, then the Discom 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 discom has entered in with the generator.

"Want to be featured here or have news to share? Write to info[at]

Ayush Verma

Ayush is a staff writer at and writes on renewable energy with a special focus on solar and wind. Prior to this, as an engineering graduate trying to find his niche in the energy journalism segment, he worked as a correspondent for