Stressed power assets: Is relief possible, Allahabad High Court asks RBI

By: |
New Delhi | Published: August 3, 2018 4:13:45 AM

The Allahabad High Court on Thursday asked the Reserve Bank of India whether it could relax its February 12 circular mandating 1-day default trigger for resolution of stressed assets, exclusively for the power projects.

As for the assets identified under the Samadhan scheme (11 projects with combined capacity of 12,460 MW), the government asked for an extension of the reference date (for designing a resolution plan within 180 days) from March 1, 2018, to December 31, 2018.

The Allahabad High Court on Thursday asked the Reserve Bank of India whether it could relax its February 12 circular mandating 1-day default trigger for resolution of stressed assets, exclusively for the power projects. While the RBI counsel could not give any commitment straightaway, the court told him to file a response by August 9, when it next hears the case. The circular had raised chances of insolvency proceeding being invoked against 34 stressed projects by as early as September.

In a submission to the court, the government is learnt to have cited the ‘uniqueness’ of the sector and the ‘usual delays’ in payment by discoms and argued that initiation of the resolution process could wait till at least 90-day default.

As for the assets identified under the Samadhan scheme (11 projects with combined capacity of 12,460 MW), the government asked for an extension of the reference date (for designing a resolution plan within 180 days) from March 1, 2018, to December 31, 2018.

The power ministry also argued that pushing the assets in the sector for resolution under the Insolvency and Bankruptcy Code “in a hurry” might jeopardise the country’s energy security and force liquidation of these assets for a fraction of their costs, causing huge losses to the banks.

Recently, the highest offer of Rs 2,500 crore quoted for GMR’s 1,370-MW thermal power plant in Chhattisgarh, put the cost of the plant at Rs 1.8 crore/MW, significantly lower than the Rs 6 crore/MW needed to set up a coal-based power generation asset. Low prices offered for power projects reinforces the apprehension that the NCLT may bring down the value of projects, hurting both lenders and existing promoters.

Outlining various steps taken by the government to address the problems related to the sector, including UDAY, coal linkage scheme Shakti and the proposed ones like the SBI-led Samadhan and the REC-formulated Pariwartan, the power ministry said, “The situation of electricity demand lagging behind the capacity addition is temporary phenomenon and likely to correct very soon due to various initiatives of the government … and steady growth of our economy at a rate of more than 7% per annum.”

The power ministry estimates that nearly 66,000 MW of power generation capacity in the private sector, entailing a financial exposure of over Rs 2.5 lakh crore may be under stress. About 70% of these projects are either operational or nearing commercial production.

The government also informed the court that it had set up a high-level empowered committee last week to resolve various issues, including fuel allocation, and prevent stressed power assets worth Rs 2.5 lakh crore from becoming non-performing assets (NPAs). Power producers have been pitching for a relief from the RBI circular, asserting that the stress in the sector is caused by factors beyond their control. In its report after consultations with stakeholders, the finance ministry also said last month that the RBI’s “one-size-fits-all approach” under its February 12 circular might not be the most suitable response to deal with stressed assets in the power sector.

Under the Samadhan scheme, rating agencies have identified their “sustainable debt” levels. Thereafter, banks would place up to 51% equity of these projects for auctions to gauge investor interest in them, and the rest would be held back by banks and existing promoters so that they get a chance to redeem their stakes when demand revives.

If any asset does not attract bids in accordance with its appropriate valuation, either under the NCLT/IBC process or under Samadhan, then it can be warehoused under the Pariwartan scheme (which was favoured by the RBI).

As many as 34 power assets with a capacity of 40,130 MW remain stressed. The top 4 stressed assets by capacity are KSK Akaltara (3,600 MW), Adani Tiroda (3,300 MW), Jaypee Bara (1,980 MW) and Rattan Power Nasik-1 (1,350 MW).

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.