Andhra Pradesh government through its discoms appealed against this order that came into effect from 1 August. Photo: Bloomberg
Andhra Pradesh government through its discoms appealed against this order that came into effect from 1 August. Photo: Bloomberg

Centre to file SLP in SC to ensure timely electricity payments

  • As part of the payment security mechanism, a LC can be encashed by an electricity supplier if a discom doesn’t clear its dues in time
  • If electricity is cut due to non-opening of the LC by the discoms, they will be liable to pay compensation to the generator as per the terms of PPAs

NEW DELHI : In an attempt to help green energy developers receive their payments, the union government plans to file a special leave petition (SLP) in the Supreme Court, requesting a timely decision from the High Court of Andhra Pradesh over the power ministry’ order of making it mandatory for state distribution companies (discoms) to offer letters of credit (LC) for buying electricity.

As part of the payment security mechanism, a LC can be encashed by an electricity supplier if a discom doesn’t clear its dues in time. Given the controversial attempt by the Y.S. Jagan Mohan Reddy-led state government to renegotiate clean energy tariffs with developers, the power ministry’ order also prevented them from procuring power from exchanges and through the open access mechanism.

Also, in the event of a stoppage of electricity supply due to non-opening of the LC by the discoms, they will be liable to pay compensation to the generator as per the terms of power purchase agreements (PPAs).

Andhra Pradesh government through its discoms appealed against this order that came into effect from 1 August, with the Andhra Pradesh High Court staying the order.

“We are filing an SLP in the Supreme Court because we are not getting the decision in time from the high court of Andhra Pradesh," Anand Kumar, secretary in ministry of new and renewable energy told Mint.

This recourse to the apex court comes in the backdrop of a difficult time for India’s clean energy sector, with mounting dues to generators threatening to dent India’s image as a clean energy champion.

Financial Express newspaper reported about the move on Thursday.

“What we have done is that wherever the LCs were there, we have passed an order that all state governments including SECI (Solar Energy Corporation of India) and NTPC Ltd shall open LCs. And if they don’t do so, we will not allow state governments to procure power through the exchange or anywhere else," added Anand Kumar.

Experts welcomed the move.

“It will be a good step ahead to resolve the real and perceived issues around sanctity and enforceability of contracts which is impacting investments outlook, renewable capacity additions, straining centre - state relations and efforts towards climate change," said Sambitosh Mohapatra, partner, power and utilities at PwC India.

The Union government also plans to set up a new tribunal solely to enforce PPAs, creating an additional legal safety net for investors, Mint reported on 18 February. The National Democratic Alliance government, which is facing investor criticism plans to amend the Electricity Act of 2003 to create the tribunal that will be headed by a retired judge.

“The unfortunate part is that developers never see that what mistakes they made. Mistakes they made but they want us to solve this," said Kumar and added, “Most of the contracts that the developers signed with the state governments, in their eagerness to sign them, they forgot to introduce the clause on the LCs."

India is running what will become the world’s largest clean energy programme, with an aim of having 175GW of clean energy capacity by 2022. It plans to add 100GW of solar capacity by 2022. India’s emerging green economy may need investments of around $80 billion till 2022, growing more than threefold to $250 billion during 2023-30.

“If they forgot to include the clause on LCs, I can’t help them out. Number two—all those contracts which had the clause of LC, they did not insist that it should be opened. Three, when discoms started delaying the payments, they did not go to the courts saying look, I have a valid contract, I am not being paid. They waited for one full year plus saying I should not and I would not take the annoyance of the authorities of the state government," Kumar added.

The Centre is trying to step up efforts to supply 24x7 power to all. The Centre is also considering offering state governments concessional loans from public sector lenders Power Finance Corp. (PFC), Rural Electrification Corp. Ltd (REC) and Indian Renewable Energy Development Agency (IREDA) to help power distribution companies clear green energy dues. The loans are expected to be made available at cost plus nominal fee to help clear the backlog. In return, the respective borrowing state governments will have to either offer a sovereign guarantee or escrow one or more of its revenue streams to the lender.

“Most of the problems arise from a contract which is not well defined," Kumar said.

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