Cautioning that loans of around R2.3 lakh crore to private-sector power companies are on the verge of turning bad, public sector banks including the State Bank of India, Punjab National Bank and Oriental Bank of Commerce have sought the finance ministry’s intervention to salvage the situation and have been assured of help.
Even as a R2 lakh crore debt restructuring for state electricity boards/ distribution companies is about to take off, banks presented their case forcefully to draw an assurance from finance minister P Chidambaram that the matter would be taken up with the ministers of power, coal, petroleum and environment.
It is felt that since large investments are sunk into generation projects without being able to contribute to the GDP, defaults by power companies could be turn out to be a threat to the economy.
According to sources, the idea, therefore, is to remove policy hurdles and address delays in clearances to ensure there are no large-scale defaults from these power firms which have invested significantly, but are far from earning revenues.
Sources said banks have reminded the ministry that they had lent to private power companies on being prodded by the government and on assurance that policy issues would be resolved to make their business viable.
Punjab National Bank CMD KR Kamath told FE: “This is not an SOS call (to the finance ministry) but a concern is definitely there.” He added that with discoms unable to pay the power generators, the latter are finding it difficult to repay loans.” Power producers are troubled by lack of fuel linkage. Many power stations are not able to generate power, sell it and get returns on their investments. “Lack of raw material is causing a lot of stress,” Kamath said.
Banks raised lending to private power producers in the past few years, responding to the government’s policy focus on bridging the electricity deficit, an imperative for sustainable, rapid growth.
As per the National Tariff Policy, power projects needed to be financed through 70% debt and 30% equity. A power producer may contribute higher equity, but the electricity regulator CERC allows assured return on only up to 30% of equity.
Care Ratings MD & CEO DR Dogra said policy level issues – such as lack of coal and FSAs – have made power sector business a lot more tough to operate in. As per a Credit Suisse August 2012 report, 36 thermal power projects involving a debt