Bidders can furnish letter of undertaking instead of bank guarantees for renewable power projects

New Delhi: The government on Friday said clean energy developers can furnish letter of undertaking issued by IREDA, PFC or REC in lieu of bank guarantees under state auctions for renewable power projects. The move will further improve ease of doing business for companies, New and Renewable Energy Minister R K Singh said.
In a statement, the Ministry of New and Renewable Energy (MNRE) said Singh "has approved a proposal for acceptance of Letter of Undertaking issued by IREDA, PFC and REC in lieu of bank guarantees for Earnest Money Deposit (EMD) by SECI (Solar Energy Corporation of India), NTPC and NHPC in the case of tenders/biddings for developing renewable energy (RE) projects in the country."

IREDA (Indian Renewable Energy Development Agency Ltd), PFC (Power Finance Corporation) and REC are the three non-banking financial institutions under MNRE/Ministry of Power.

"This decision...will go a long way in ensuring ease of doing business in RE sector as the developers will now have one more option in fulfilling the tender requirement," the statement quoted Singh as saying.

SECI, NTPC, NHPC are the government nodal agencies for bidding out clean energy projects.

In a letter to the agencies, MNRE said SECI, NTPC, NHPC or any other implementing agency on behalf of the ministry may accept EMD, in the form of bank guarantees or 'Payment on Order instrument'.

"'Payment on Order instrument' means Letter of IREDA or PFC or REC Ltd... to pay in case situation of default of RE power generator in terms of tender conditions and/or Power Purchase Agreement (PPA) arises," it said.

Such letters will have same effect as that of a bank guarantee issued by any public sector bank, it said.

The 'Payment on Order instrument' would have terms and conditions similar to that of any bank guarantee given by any public sector bank and would promise to pay the procurer on demand within stipulated time.

The communication further said "the above decisions may be treated as amendments to the respective Standard Bidding Guidelines (SBG) (solar/ wind) and notified accordingly."

IREDA, PFC or REC may issue such letters of undertaking as per their policy, on merit and after due diligence, it added.