Payment Security Mechanism for DISCOM for Power Purchase

  • Power Ministry has  approved implementation of Payment Security Mechanism for purchase of power by DISCOMs as per Law.
  • Distribution Licensees required to open and maintain adequate Letter of Credit (LC) as Payment Security Mechanism under Power Purchase Agreements from 1st August, 2019
  • It is made mandatory to maintain adequate Letter of Credit (LC) as Payment Security Mechanism under Power Purchase Agreements.
  • Accordingly, Ministry of Power has issued the following order on 28.06.2019 –

1.0 Under the Electricity Act 2003, RLDC and SLDC are responsible to ensure supply of electricity as per contracts.

2.0 Electricity Act 2003 provides, RLDC shall be responsible for optimum scheduling and dispatch of electricity within the region, as per contracts with generating companies operating in the region.

3.0 SLDC shall be responsible for optimum scheduling and dispatch of electricity within a State,as per contracts with generating companies operating in that State.

4.0 The Power Purchase Agreements(PPA) have the provision regarding maintenance of adequate Payment Security Mechanism mainly in the form of Letters of Credit by the Distribution Licensees/ Procurers of Power. 

5.0 It has been seen the Letters of Credit are not being given and there is huge outstanding on account of unpaid power bills. It is essential to implement above provision strictly. NLDC & RLDC are therefore directed as follows:

        1. The NLDC & RLDC shall dispatch power only after it is intimated by the Generating Company and /Distribution Companies that a Letter of Credit for the desired quantum of power has been opened and copies made available to the concerned Generating Company.
        2. The intimation to NLDC and RLDC shall specify the period of supply.
        3. RLDC shall dispatch electricity only up to the quantity equivalent of value of Letter of Credit.
        4. The dispatch shall stop once the quantum of electricity under LC is supplied.
        5. The concerned generating company shall be entitled to encash the LC after expiry of grace period, i.e. 45 to 60 days as provided in the PPA.
        6. In the event power is not dispatched for any reason given above, the Distribution licensee shall continue to pay the Fixed Charge to the Generating Company.

7.0 In case scheduling and despatch of power produced by any generator is not done due to non-opening of Letter of Credit by the Distribution licensee, then the Distribution licensee would be liable to pay compensation to the generator as per the terms of Power Purchase Agreement.

8.0 NLDC/ RLDC/SLDC shall carry out such duty cast under Electricity Act, 2003 from 01.08.2019.



RLDC: Regional Load Despatch Centres

       SLDC :State Load Despatch Centres

PPA : Power Purchase Agreements

NLDC: National load Dispatch Centre

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