In a big relief to the stressed power sector, the government today approved the proposal for the implementation of a payment security mechanism for the purchase of electricity by distribution companies from generating firms.

An official release said the power ministry has made it mandatory for discoms to open and maintain the adequate letter of credit as payment security mechanism under power purchase agreements for buying electricity from generating firms from the 1st of August this year.

Power Minister R K Singh, in a major decision, has approved the proposal to make it mandatory for distribution licensees to open and maintain the adequate letter of credit.

The independent power producers have been demanding to put in place a payment security mechanism to reduce stress in the sector.