An Indian government requirement that power distribution companies must put up letters of credit (L/Cs) to ensure that they pay power generators appears to be paying off.

But while the move has all but halted what had been an inexorable increase in the amount power distributors owed to generators, it has not succeeded in reducing the total sum of overdue payments.

Increase halted

Last year the Indian government issued an order that obliged power distributors to provide conditional L/Cs for purchases of power from 1 August 2019 onwards.

According to the latest figures, power distribution companies appear to have paid their bills. Between July 2019 - the month before L/Cs were required - and November 2019, outstanding dues rose by the equivalent of just US$108 million.

Debt remains

Over the same period in 2018, outstanding payments were up by the equivalent of nearly US$1.6 billion, from US$6.9 billion in July to US$8.4 billion in November.

Outstanding payments of all distribution companies have now reached the equivalent of US$12.2 billion, indicating that the move has done nothing to reduce the residual mountain of debt that distribution companies owe to power generators.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.