Partially lifting a bar imposed last year on government entities from issuing letters of comfort to financiers, the Finance Ministry on Monday allowed central public sector firms (CPSUs) to issue such letters, provided they explicitly state that no liability will devolve on the Government of India from such letters.
The rethink was prompted after requests from the Ministries of Power as well as Petroleum and Natural Gas over the last two months to relax the prohibition on such letters that was introduced in March 2022. While the Power Ministry sought the change for NTPC, the Oil Ministry made a similar request on behalf of HPCL and IOCL on February 24.
“It was informed that issuance of letter of comforts, based on own financial strength, is a part of regular business practice, enables these entities to raise resources at competitive rates for their capex and working capital needs, as well as furthering the business interests of their joint ventures, subsidiaries and group companies. It was also submitted that financial liability will not befall on the Government of India from these LOCs,” the Department of Economic Affairs said in a memo on Monday.
Taking these factors into account, the Ministry has decided that central PSUs may issue LOCs on its own financial strength and after specifically inserting a clause that states: “Under no circumstances, the liability under this LOC shall devolve on Government of India.”
