Power distribution utilities will have to either offer a Letter of Credit for power supplies or pay in advance to power generation companies, according to guidelines issued by the Ministry of Power.

On June 28, the Ministry of Power made it mandatory for power distribution companies (Discoms) to provide a payment assurance to power generation companies (Gencos) before procuring electricity through a Load Dispatch Centre (LDC).

“The Letters of Credits (LOCs) are issued by the banks and financial institutions. For a LoC, you have to deposit a certain margin that will be given by the Discoms. That is an essential requirement from August 1,” Minister of State (Independent Charge) for Power and New and Renewable Energy, RK Singh said.

The procedure for scheduling of power to distribution company in the event of non-maintenance of Letter of Credit was laid down by the Power Ministry on Wednesday.

“In case of difficulty in opening of LOC, the distribution company may pay in advance through electronic mode the amount equal to the amount corresponding to at least one day’s purchase of electricity and inform the same to the respective LDC. In such a case also LDC shall schedule the power to the distribution company. The quantum of power so scheduled shall be limited to the quantum for which the money has been deposited,” the Ministry said.

Effectively it means that the Discom will have to pay in advance for at least a day of electricity supply if it does not manage to get a LOC to guarantee these purchases.

“The LOC can be for a supply period of 10 days, instead of a month, and then it can be rolled over. So you take a supply for 10 days, give a fresh LOC for another 10 days….A Discom that regularly clears dues to Gencos will have to pay lesser for an LOC. A Discom that does not clear dues will have to shell out more,” Singh said.