Letter of credit system making discoms more disciplined, says Power Minister RK Singh

The government is banking on the recently implemented letter of credit (LC) mechanism to compel state-owned electricity distribution companies (discoms) to become more disciplined and improve their revenue collection. Union power minister RK Singh told FE that since it is now mandatory for discoms to issue LCs in advance to receive power, “the system will ensure that the discoms are also encouraged to collect the dues (from customers) diligently”.

The power ministry has mandated discoms to open and maintain adequate LCs as payment security to power plants from August 1. “Most states managed to issue LCs. A few who could not issue these, too, managed to make advanced payments (to gencos),” Singh said. However, the minister said since some of the power purchase agreements for renewable energy projects do not have the provision of LCs, the Union government cannot enforce this payment security measure for these projects.