Editorial: Banking on infrastructure

By: |
April 30, 2015 2:38 AM

Sorting out stalled projects won’t be easy

It is ironic that on the very day the government held a meeting to discuss solutions to fast-track 85 stuck infrastructure projects, worth R3.5 lakh crore, Reliance Power decided to pull the plug on the Tilaiya ultra mega power project (UMPP) it won in 2009—as a result, 2 of the 4 UMPPs awarded so far are out of action while a 3rd is in court over the issue of tariffs and could shut down were this not to be decided in its favour. While Reliance has cited the non-availability of land as the reason for pulling out—the Jharkhand government has said the land would have been made available soon—the long delays also cast a shadow over the plug-and-play UMPPs the government announced in the budget since the UMPP awarded to Reliance was also supposed to have all the clearances in place before it was bid out in 2009.

The government’s statements, following a meeting with bankers in Mumbai on Tuesday, on resolving fuel supply and other issues for 65,000MW of gas- and coal-based power plants also needs to be treated with some degree of scepticism. In the case of the gas-based power plants, the capacity utilisation being talked of, even after enhanced supplies, is too low for the plants to make money. In the case of the coal-based power plants, thanks to the government’s decision not to allow the coal bids to be passed on to the consumer—indeed, the way the bids are structured, tariffs have to come down—this puts an additional burden on producers. An additional problem is that with many power projects finding the current tariffs unviable—most power projects which do not have a provision to pass on higher fuel costs are in court on the matter—the promoters simply do not find it viable to produce. This is the reason why the CERC had allowed power tariff hikes to the Tata and Adani power projects, but these are now stuck in court. An additional problem is that, with the states slowing down tariff hikes over the past two years, the financial position of major state electricity boards has also deteriorated, once again causing financial stress to power producers and distribution companies.

Indeed, while a lot of attention has been focused on the lack of land as the primary reason for stalled projects, according to an RTI answer given by the finance ministry, the Economic Times has reported that just 8% of 804 stuck projects fall in this category. The major reasons cited for the delay are unfavourable market conditions (97 projects), lack of non-environment clearances (95), lack of promoter interest (94) and lack of funds (84). In which case, as was recommended in the meeting with bankers on Tuesday, banks will have to wrest ownership control of stuck projects and find new promoters to sell them to, at a discount if need be. A good place to start would be Ratnagiri Gas where, after converting loans into debt, bankers are now the majority shareholders—in the past, the Maharashtra government was opposing the bankers’ plan to hive off the LNG terminal and sell it off.

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