Coal hit to further dent banking sector

Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) have significant exposure to a number of power projects where the associated mine is now under the scanner, while public sector banks led by the State Bank of India are involved in syndicating the debt component of a number of others.

In nearly all cases, the loan was in the form of non-recourse funding, where the lender is only entitled to repayment from the profits of the project the loan is funding, not from other assets of the borrower.

For instance, RKM Powergen, a special purpose vehicle floated by Chennai-based R K Powergen and Malaysian firm Mudajaya Group Berhad to set up a 1440 MW coal-fired power project in the Janjgir-Champa district of Chhattisgarh, is one such projects where the coal block is now under a cloud. In the first two phases, PFC has an exposure of Rs 2,000 crore and REC Rs 1,420 crore.

The Fatehpur (East) block, which was jointly allocated to RKM Powergen in January 2008 along with a consortium of companies that included JLD Yavatmal Energy, Vandana Vidyut, Visa Power and Green Infrastructure, is now under the scanner for failure to achieve project milestones.

Vandana Vidhyut Ltd., another players that was jointly allocated the Fatehpur (East) block, only had the experience of operating a 8MW rice husk-based bio-mass power plant at Bilaspur, Chhattisgarh to its credentials. SBI is the lead banker,

... contd.