Stating that factors beyond the control of the promoters — like coal supply constraints, sub-optimal loading and lack of assured long-term offtake — have crippled dozens of private-sector power projects, a parliamentary committee has called for a more pragmatic approach by the lenders to these firms, rather than applying Reserve Bank of India (RBI) guidelines “mechanically”. Finding that the RBI’s strategic debt restructuring (SDR) scheme is not “efficacious enough as it doesn’t resolve the reasons which have made the project NPA (non-performing asset)”, the standing committee on energy recommended a review of the SDR guidelines so that change in ownership/management is pressed only after it is established beyond doubt that promoter’s negligence was the sole reason for a project’s stressed condition.
As reported by FE recently, lower-than-expected growth in demand for electricity, coupled with the overcapacity of installed power projects, has precipitated a situation where more than 20,000 MW of under-construction coal-based power projects in the private sector are staring at an uncertain future. The cost of the under-construction private sector power projects now stands at more than Rs 1,85,000 crore, up from original estimate of Rs 1,45,000 crore. Bankers are reluctant to release the sanctioned loans to most of these projects, even though till December 2017, independent power producers had spent more than Rs 63,000 crore on these uncertain projects. Taking a grim view of the stressed assets in the sector which consists of 34 private power plants with an outstanding debt of Rs 1.74 lakh crore, the committee in a report tabled in Parliament on Thursday recommended changes in the coal allocation policy and national electricity policy (NEP) to remedy the situation. The panel analysed specific projects of Adani Power, Essar Power, Jindal India, Lanco, Monnet Power and Jaypee Power Ventures, among others. These plans have a combined generation capacity of over 40,000 MW. Further, the report said, regulatory delays had contributed to the stress in the sector. Even the decisions of the regulator regarding ‘change in law’ is not honoured by discoms and various regulators interpret change in law differently leading to confusion in the sector. “Provision should also be made for certain percentage of payment of regulatory due to be paid by discoms in case the orders of regulators are being taken to electricity tribunal or higher judiciary,” the panel recommended.
According to the panel, the projects are being downgraded by rating agencies even for delay in payment by one day over the mandated 90 days. This downgrade leads the banks to charge a penal interest rather than supporting the assets. “The committee recommend that for classification of assets as NPAs and consequential action as a result thereof lender should follow their own norms regarding charging of interest and help the asset in not becoming NPA,” the report said. Further, the panel recommended that the RBI should ensure that banks follow a proposed credit rating system for fundamentally strong projects which face only temporary cash flow mismatch. The panel noted that discoms and Coal India in the past have reneged on letters of intent for buying power and letter of assurance for coal supply, respectively. These commitments are often considered by banks to approve lending. It said that these documents should be given the status of ‘testaments’ and be made justiciable so that commitment made by different departments are honoured without any option of backtracking. The panel noted Coal India has gone back on its words to supply coal despite the power projects fulfilling conditions for supply. It also criticised power ministry’s scheme Shakti, which was intended to provide fuel via e-auctions to plants without any fuel supply agreements, as it has failed to deliver what was promised. On SDR, the committee observed that even after its implementation, the factors that were responsible for the stress remained. “There is no guarantee that with the substitution of ownership there will be experts, technocrats with required operational expertise and managerial efficiency which will certainly bring a turnaround,” it said.