In a bid to salvage the “stressed assets” in the electricity generation sector, power minister Jyotiraditya Scindia has written to finance minister P Chidambaram seeking a relaxation of loan repayments by two to three years, along with a waiver of the penal interest for projects running at less than capacity and full re-financing of rupee loans with external commercial borrowing (ECB) to free up domestic resources for further lending.
The power minister’s concerns on full rupee come at a time when bank loans worth Rs 1.9- Rs 2.1 lakh crore to the country’s top 100 companies are coming up for refinancing over the next 15 months, which amounts to 27-29 per cent of the aggregate net worth of the entire banking system. The top borrowing firms in the power sector include, Tata Power, Reliance Power, Jindal Steel and Power, GVK Power, Suzlon and JSW Energy. Scindia has argued that while the current limit for refinancing is 40 per cent for the power sector, most projects are implemented by the SPVs and that 100 per cent re-financing with ECBs should be allowed to free up domestic resources for further lending. However, as a safeguard, the limit for this mechanism should be capped at $15 billion, which would cover approximately 25-30 per cent of the existing debt in ongoing power projects.
Scindia has also sought the finance minister’s intervention in asking the banks to issue Letters of Credit (LCs) or guarantees for a total of five years, provided the project developers hedge their forex risk beyond three years. In the letter to Chidambaram on January 7, he has also sought that investment regulations of the Insurance Regulatory Development Authority (Irda) should be tailored to facilitate investment of insurance funds for BBB-investment grade papers of infrastructure companies.
Scindia has sought creation of a special window for ECB hedging (through the Reserve Bank of India) for the entire sector (10-12 years) of loans subject to the condition that at least 70 per cent of the debt remains hedged throughout the loan cycle. Uncertainty in coal and gas supply and green hurdles have led to many new plants missing their commissioning timelines. As per available information, as many as 39 gas-based projects (6,000 MW) are running at less than 25 per cent plant load factor and about 8,000 MW capacity is stranded for want of gas allocation, the power minister wrote in his letter.