A central government effort to instil payment discipline among power distribution companies (discoms) by mandating letters of credit (LCs) is showing signs of success, though the move has not helped clear past dues.
In June, the Union power ministry directed state discoms to open LCs with their power suppliers, in an attempt to ensure that independent power developers (IPPs) get guaranteed payments. If the discom defaults beyond the grace period provided in the power purchase agreement, the IPP is free to invoke the LC.
Some of the IPPs in India had unpaid dues of more than 12 months when the Centre brought in the move. The latest public data shows that the rate at which discoms are racking up unpaid bills has slowed down