Govt puts in place payment security mechanism for discoms to buy power

In a big relief to the stressed power sector, the government Friday approved the proposal for implementation of a payment security mechanism for purchase of electricity by distribution companies from generating firms.

The power ministry has made it mandatory for discoms to open and maintain adequate letter of credit (LC) as payment security mechanism under power purchase agreements (PPAs) for buying electricity from generating firms from August 1, 2019.

"R K Singh, Union Minister of State for Power and New & Renewable Energy (IC) and Skill Development & Entrepreneurship, in a major decision has approved the proposal to make it mandatory for distribution licencees to open and maintain adequate letter of credit as payment security mechanism under power purchase agreements," a power ministry statement said.

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

On the decision, Singh said in the statement, "This will change the system and the sector will become viable."