Southern states gear up for Letter of Credit system for power purchases from Aug 1

Hyderabad: Power utilities of the southern States and a Union Territory are getting ready with the Letter of Credit system for power purchases from August 1 as mandated by the Centre, a member of the Southern Regional Power Committee (SRPC) said here on Tuesday.

The Centre last month approved the proposal for implementing 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.

Expressing serious concern over the Power Ministry's proposed LC system, the SRPC, comprising power utilities from Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Telangana and Puducherry, had requested the ministry to defer the implementation date.

"There was no reply to our representation from the Centre. All power purchasers (discoms) are making their arrangements to follow LC system from August 1.

There may be some hiccups initially, but it will get adjusted over a period of time," the SRPC member told PTI.

The power ministry in its July 23 letter informed that state-owned generating units are exempted from the LC system and payments for these power producers can be decided by the respective state government.

When contacted, D Prabhakar Rao, Chairman and Managing Director of TS-Transco D Prabhakar Rao said they are making arrangements for the LCs as per the Centres new system.

"We will open LCs to the extent they are available. That is what we have decided. Absolutely there will not be any problem. We feel that our LC limits are sufficient. This is a revolving LC," Prabhakar Rao told PTI.

A revolving LC is a single letter of credit that covers multiple transactions over a long period of time.

The Southern Regional Load Dispatch Centre, which ensures the integrated operation of the power system in the Southern Region, held a meeting on July 29 for familiarisation of the procedure for scheduling of power distribution companies in the event of non-maintenance of payment security mechanism or advance payment, sources said.