Government mulling new scheme to resolve stressed power assets

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Published: August 24, 2019 1:06:22 AM

Instead, Garg said, resolution could be sought through asset reconstruction companies that work as financial managers. Industry experts can also help given the technology-intensive nature of the sector.

In no uncertain terms, Garg also noted that resolving stressed power assets under the Insolvency and Bankruptcy Code would only guarantee further value destruction.

A new incentive-based scheme to resolve stressed power sector assets is being discussed and it will involve investment support from the government, power secretary Subhash Chandra Garg said on Friday.

“We’ve recently brought a mechanism that you have to have the letter of credit (LC) before you buy power and if you don’t pay, that LC will be encashed. That discipline is needed… we are also talking about creating a new scheme where the reforms can be brought in backed by incentives and investment support from the government. That’s under discussion,” Garg told reporters on the sidelines of an Assocham event.

In no uncertain terms, Garg also noted that resolving stressed power assets under the Insolvency and Bankruptcy Code would only guarantee further value destruction. “If you resolve the asset (power sector) via the NCLT, nothing will survive, practically except that plant. The PPAs go away, the FSAs go away, and if these go away, power producers will find no buyers and then it can’t be sold. What then will the new entrepreneur buy through the NCLT?”

Instead, Garg said, resolution could be sought through asset reconstruction companies that work as financial managers. Industry experts can also help given the technology-intensive nature of the sector.

“If we can get the ARCs and some strong industry players, we’ll have to probably get some new industry players besides the existing ones to come and bid for these assets. That’s perhaps the way to resolve the power sector assets,” Garg said.

The power sector is one of the worst performing from an asset quality perspective for banks, and Garg pegged the overall stressed portfolio at around `4 lakh crore or over 65,000 MW of generation capacity. “Not every kind of industry or every kind of asset can be best reconstructed through the IBC,” Garg said.

He said the dozen-odd ARCs, which have been around for over a decade now, can collaborate with an industry expert to help in resolution.
Garg said the power ministry is creating a new framework on the lines of the Uday scheme to ensure that discoms pay for the power that they are using. Under this, “discoms will buy power and would pay for that on time. We are also talking about creating a new scheme where the reforms can be brought in backed by incentives and investment support from government,” he said.

(With PTI inputs)

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