‘Letter of Comfort’ From PFC/ REC/ IREDA now at Par With Bank Guarantees

The government has decided to treat a letter of comfort issued by state-run shadow banking firms like PFC, REC, and IREDA at par with bank guarantees.

To improve the business environment for clean energy projects and attract investments, the government has decided to treat a letter of comfort (undertaking) issued by state-run shadow banking firms like Power Finance Corporation (PFC), REC and Indian Renewable Energy Development Agency Limited (IREDA) at par with bank guarantees. Developers need bank guarantees for placing bids for clean energy projects offered by nodal agencies like Solar Energy Corporation of India (SECI) and state-run power giant NTPC.

Earlier developers were issued a bank guarantee on the basis of the letter of comfort issued by financial institutions like PFC, REC, and IREDA. Now treating a letter of comfort issued by these financial institutions at par with a bank guarantee would reduce procedural delay to seek bank guarantee for bidding for clean energy projects.

The move assumes significance in view of India’s ambitious target of having 175 GW of renewable energy generation capacity by 2022. The Ministry of New & Renewable Energy (MNRE) has issued directions in this regard to PFC, REC, and IREDA.

On new initiative Power and New & Renewable Energy Minister RK Singh told reporters, “the MNRE enhanced ease of doing business for RE investors and facilitates the enhancement of increased liquidity in the market by allowing Performance Bank Guarantee with Letter of Comfort to be issued by the three Non-Banking Financial Companies under Ministry of Power and Ministry of New and Renewable Energy namely PFC, REC and IREDA.”

He further said, “The increased liquidity would promote investment in the RE sector as additional liquidity will now be available to bid for new projects.”

The minister has also ordered Solar Energy Corporation of India (SECI) and state-run power giant NTPC to pay safeguard and GST (good and services tax) pass through on annuity basis to further ease the financial stress being faced by RE investors.”

The Goods & Services Tax (GST) was introduced in July 2017 and Safeguard Duty (SGD) on import of solar PV cells and modules from China PR, Malaysia, and Taiwan was introduced in July 2018.