DISCOMs Mandated to Maintain Letter of Credit as Payment Security Mechanism to Buy Power


DISCOMs Mandated to Maintain Letter of Credit as Payment Security Mechanism to Buy Power

In a bold move, RK Singh, Union Minister of State for Power and New & Renewable Energy has announced the approval of a proposal to make it mandatory for distribution licensees to open and maintain adequate Letter of Credit (LC) as payment security mechanism under power purchase agreements.

Power generators in India have battled the challenge of delayed or non-payments by distribution companies (DISCOMS) for decades. The delay in payments has largely been due to the operational mismanagement and stressed balance sheets of these DISCOMS. Due to this risk, many investors have completely stayed away from the Indian power sector.

In May 2019, Mercom reported on payment delays becoming a problem for solar and wind project developers in India, especially in Andhra Pradesh, Tamil Nadu, and Telangana. Read More

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