MNRE introduced (June 2011) Payment Security Scheme for grid connected solar power projects under Phase-I of JNNSM with Gross Budgetary Support not exceeding ` 486.05 crore to MNRE. The main objective of the scheme was to facilitate creating a Solar Payment Security Account (SPSA) and other necessary mechanisms as a payment risk mitigation strategy in the event of default by State Utilities/Discoms in making payment to the developer. The salient features of the scheme were as under: • The State utilities/Discoms were to open Letter of Credit (LC) for six month equivalent amount which would be backed by an escrow account22. • As per the available provisions of the PPA, NVVN was to raise a provisional bill against the State Utilities/Discoms on the last day of the month. The due date of payment would be 30 days from date of billing. If payment was not made by the 30th day, NVVN was to notify a default and encash the amount from LC. In addition to encashing LC, NVVN had the right to divert and sell the bundled power in the spot/short term market.
In case, the realized amount from the market was lower than the cost of the bundled power, the difference was to be paid from the SPSA provided under the scheme. MNRE released ` 58.32 crore in three tranches to NVVN upto December 2013 and recognized interest earned as accretion of ` 2.30 crore (August 2014). NVVN had been utilizing the funds for releasing payments to Solar Power Developers (SPDs) and recouping the same on realization from Discoms. Till August 2014, NVVN had utilized ` 47.14 crore of which ` 28 crore were recouped and balance ` 19.14 crore were utilised towards charging of trading margin23, leaving ` 41.48 crore24 as unutilized balance available with NVVN. Audit examination revealed the following in the operation of SPSA: i. NVVN entered into PPA with SPDs with back to back Power Sale Agreement (PSA) with Discoms in 10 States25 (October 2010 to May 2012) to sell bundled power. NVVN did not obtain adequate LC as per the terms of PSAs from Discoms. Against the total amount of ` 1,102.09 crore LCs to be obtained as per the terms of PSA, NVVN had obtained LCs of only ` 221.94 crore as of August 2014. ii. The Discoms did not open Escrow Accounts in any of the States. Thus shortfalls in LCs obtained and non-opening of Escrow accounts, reduced the security available with NVVN to recover the defaulted amount from Discoms. iii. NVVN did not explore the option of diverting and selling the bundled power in spot/ short term market before drawing the money from SPSA as per the guidelines. NVVN did not maintain records of negotiations with third parties including prevailing exchange prices during such periods in a format specified by CERC, which was to be verified by MNRE and the Ministry of Power through a standing committee. iv. NVVN was to utilize its working capital from day one of the billing up to 60 days, to pay the claims raised by SPDs and NTPC Ltd. SPSA was to be used only in the event of non payment of dues by the Discoms within 60 days from the billing date. SPSA was to be used only as a ‘fall back’ arrangement when other payment security provisions, such as, the availability of working capital, Letter of Credit linked with an Escrow account, had been exhausted. However, in case of Rajasthan Discoms, LC of only ` 21.97 crore was provided by Rajasthan Discoms against the requisite LC of ` 481.38 crore as per PSA. This amount was only four time monthly revolving in a month (August 2014) instead of the mandated six months to cover the risk of default in payment. When these Discoms disputed the payment of trading margin26, instead of encashing available LCs, NVVN utilized ` 19.14 crore from SPSA towards unrecovered trading margin from Rajasthan Discoms. This utilization of SPSA was in violation of the provisions of the scheme because NVVN could utilize SPSA only after accessing alternate sources of funds including letter of credit linked with Escrow account.
NVVN stated (September 2014) that the Discoms were requested to open Escrow account and Discoms had retained the amount on account of pending issues. MNRE stated (May 2015) that the Discoms had been requested many times to open the Escrow account and LCs with proper amount but they have not done the same because of financial resource crunch and limits not available.