CERC Approves Reserve Bank of India Letter Of Mandate As Payment Security For Indian Railways’ Power Connectivity

The Indian Railways filed a petition with the Central Electricity Regulatory Commission (CERC) seeking directions to allow the Reserve Bank of India’s (RBI) Letter of Mandate as a valid payment security mechanism in place of Bank Guarantees (Conn-BGs) under the General Network Access (GNA) Regulations, 2022.

The petition arose from challenges faced by the Railways in fulfilling the Bank Guarantee requirements mandated for obtaining power connectivity approvals from the Central Transmission Utility of India Limited (CTUIL). The issue specifically pertains to connectivity requests in states such as Uttar Pradesh, Tamil Nadu, and Maharashtra, covering projects aimed at upgrading electrical traction systems and enhancing the speed and efficiency of operations under critical infrastructure initiatives like the PM Gati Shakti Mission.

The Railways argued that its financial systems do not accommodate issuing Bank Guarantees, and historically, RBI-issued Letters of Mandate have been used successfully as payment security mechanisms for power sector transactions. The Railways emphasized that rejecting these mandates not only imposes unnecessary administrative and financial burdens but also risks delaying vital infrastructure projects. The Railways sought relief under CERC’s regulatory provisions to relax or amend the requirements, allowing Letters of Mandate to be accepted in place of Bank Guarantees.

CTUIL, on the other hand, maintained that the GNA Regulations strictly prescribe Bank Guarantees as the only acceptable payment security instrument and insisted on adherence to the rules. While CTUIL acknowledged the Railways’ unique challenges, it requested that any relaxation granted should be specific to this case and not set a broader precedent.

CERC examined the petition, considering precedents where Letters of Mandate were accepted in similar contexts and endorsements by the Ministry of Power recognizing these mandates as valid payment security mechanisms. The Commission acknowledged the financial and operational constraints of the Railways and the credibility of the RBI as India’s central bank. CERC concluded that for Indian Railways alone, RBI-issued Letters of Mandate could be accepted instead of Bank Guarantees under the GNA Regulations, subject to specific conditions ensuring their validity and enforceability. The decision mandates CTUIL to collaborate with Indian Railways to finalize the format for submitting these mandates within a month.

While the Commission’s order provides significant relief to the Railways, it limits the applicability of this relaxation to pending or new connectivity applications. Previously closed applications, such as those in Uttar Pradesh and Tamil Nadu, were not reopened. The decision underscores CERC’s flexibility in addressing unique challenges without undermining the broader regulatory framework. The ruling is seen as a step toward reducing the financial strain on public institutions and facilitating smoother implementation of critical infrastructure projects.