Direct loan transfer to help BHEL recover power dues

Written by Subhash Narayan | New Delhi | Updated: Sep 30 2013, 06:54am hrs
In what may help Bharat Heavy Electricals (BHEL) recover its dues from power project developers, state-owned financial institutions, Rural Electrification Corporation, Power Finance Corporation, and the State Bank of India have agreed to disburse loan sanctioned for projects directly to the equipment maker.

Under the current arrangement, payment to Bhel is routed through developers.

If lenders give funds to BHEL rather than the power firms, it would also help them to realise the loans as it would pave the way for a timely completion of projects and earnings from the sale of electricity could be used to repay loans. Sources in the heavy industries ministry told FE, BHEL has spoken to chairmen of PFC, REC and SBI, and the latter has agreed for such mechanism on a case-to-case basis.

In fact, SBI has already agreed for such direct transfer in case of Indiabulls Nashik and Amravati projects that owe BHEL a sum of R480 crore.

These three institutions account for almost 70% financing of power projects where BHEL is the main plant equipment supplier.

We are now planning to institutionalise this mechanism for large suppliers to power projects such as BHEL so that work on power plants is not hampered due to non-payment of dues by the developers, said a BHEL official asking not to be named.

It is expected that representatives of SBI, PFC and REC and a few other financial institution along with officials of the Reserve Bank of India would soon start to make the direct transfer mechanism a permanent feature of supplier-vendor contracts in power projects.

A line entry could be made at the time of financial closure of a project that such transfers would be made in cases where vendors have large exposure in projects, said a heavy ministry official involved in the talks on the issue.

Main plant equipment supplies by companies such as BHEL represent almost 40% of the project cost of a power plant.

The fresh move towards the new payment mechanism comes in the backdrop of concerns about non-payment by customers.

The total dues outstanding of BHEL as of June stand at around R39,000 crore. Of this, only R13,000 crore is due and recoverable as on date and the balance would become dues once the PSU complies with some supply related milestone.

The slowdown, regulatory hurdles/clearances and high-borrowing costs have hit a host of infrastructure projects and restricted the ability of companies to repay debt owed to creditors and vendors.

As a precautionary move, BHEL has stopped all equipment and other material supplies to a host of power sector projects to exert pressure on them to pay up soon.

In 2011-12, BHEL bagged orders worth 2,800 MW out of total order floated of about 4,000 MW. The share has gone down in 2012-13 when it got new orders for 8,000 MW out of total orders of 15,000 MW. The sluggish order book has affected companys cash flows and dues outstanding is adding to the pressure.

From a high order inflow of R60,500 crore in 2010-11, the position deteriorated in 2011-12 to a mere R20,000 crore. This has now (2012-13) increased to R31,500 crore.