The idea is that these plants are run by the SPV without any change in their current ownership, for a reasonable period, within which their value could improve as demand picks up.
Amid the prospect of insolvency proceedings being initiated for several stressed power plants, the power ministry has proposed that instead, state-run lenders Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) along with the country’s largest power generator NTPC form a special purpose vehicle (SPV) to run them. The idea is that these plants are run by the SPV without any change in their current ownership, for a reasonable period, within which their value could improve as demand picks up. Power plants with a combined capacity of 40,000 MW, all ready to go but either stranded or running much below their nameplate capacity, would benefit from the move, according to power minister RK Singh. Units of Lanco (1,200 MW, Anpara), Essar (600 MW, Mahan), Adani (600 MW, Korba-west) and GMR (1,050 MW, Kamalanga) are learnt to be among the projects that the ministry intends to salvage through the move.
Singh, however, added implementation of the proposal would be subject to it “finding resonance” with the finance ministry. The proposed SPV would have to get power purchase agreements (PPAs) signed for the plants which don’t have them, the minister said, adding that he was confident that a lot of PPAs would be coming up in the near future with demand rising. While the power ministry has convened a meeting to discuss the proposal with PFC, REC and NTPC on Tuesday, it wasn’t immediately clear how the SPV would finance the operational expenditure of the plants. According to Reserve Bank of India (RBI) guidelines, in case of defaulting/standard restructured accounts with aggregate exposure of the banking sector above Rs 2,000 crore, lenders will have to implement a resolution plan within 180 days from March 1, 2018; if the plan is not implemented during the period, the lenders are required to file for proceedings under the Insolvency and Bankruptcy Code within 15 days after the expiry of the deadline. So the power ministry’s latest proposal is contingent on a relaxation of the RBI’s guidelines, specifically for these projects.
The private power industry is, however, sceptical about the new proposal, as “it does not address the underlying stress causes”. Ashok Khurana, director general, Association of Power Producers, told FE: “The solution lies in resolving the stress factors, which are owner-neutral.” The government had identified 34 power plants with an outstanding debt of Rs 1.74 lakh crore as stressed assets in the power sector. The main reasons for the stress in the sector are coal-supply constraints and dearth of PPAs. Operational power plants of 15,600 MW do not have any long-term PPAs right now, and more than 18,000 MW do not have any regular coal supply.
PFC Consulting, a PFC subsidiary, recently signed a memorandum of understanding with PTC India for exploring power procurement opportunities from coal-based power plants to facilitate signing of PPAs with electricity distribution companies.
NTPC has already received proposals for about 4,500 MW of stressed power assets from lenders after it expressed interest in taking over such units in late 2017. These units include the 1,200 MW Derang plant of Jindal India Thermal Power and the 1,980 MW Barah plant run by a subsidiary of Jaiprakash Power Ventures. Separately, JPVL also offered its 1,320 MW Nigrie plant to the country’s largest power generator.