CIL allows Usance Letter of Credit facility to power, non-power sector consumers

In its effort to provide some relief to the power sector at the time of lockdown in the county, the country's largest coal producer Coal India Limited (CIL) has extended the letter of credit facility for payment of coal instead of cash advance - for coal procurement to power sector consumers – that is mandated for supplies made under the Fuel Supply Agreement (FSA).

"To provide relief to the power sector consumers and increase liquidity in the system, CIL has already allowed the facility of Usance Letter of Credit to power sector consumers for payment of coal instead of cash advance for the Fuel Supply Agreements (FSA). This will help significantly in improving the working capital cycle of the generators," a statement from the Coal Ministry said.

Usance letter of credit

It is a payment security mechanism for CIL where there are two banks and they are issuing bank and receiving bank. Issuing bank is the one that issues a letter of credit to the coal consumers depending on their credit profiles while the Receiving bank is based on the letter of credit releases payment to CIL once certain conditions are met. However, the CIL gets payments on the presentation of invoices from the receiving bank and the coal companies can make payments after some time.

The statement added, "The CIL has also introduced the same mechanism for customers of Non-Power Sectors in April 2020. This will be a big boost to the liquidity in the markets and at the same time will also provide the much-anticipated relief to the consumers of coal."

CIL is supplying about 80 per cent of its coal to power sector consumers and 550 million tonnes of coal has been offered for the power sector in the current fiscal year 2020-21.

Earlier, CIL had decided to not impose late payment penalties on power sector customers for not lifting contracted coal quantities within the stipulated period.

"CIL continues to supply coal, despite payment defaults, to the power generating companies in the Central and State sectors amid COVID-19 crisis," the company had said.