With the Supreme Court’s verdict on the maintainability of RBI’s February 12 circular slated to be pronounced on Tuesday, independent power producers, in their supplemental submission to the apex court, have highlighted “inconsistencies” in the RBI’s stance on inter-creditor agreement (ICA).
The industry also reiterated how payment indiscipline and preferential treatment to PSUs are causing stress in the sector. The SC had reserved the order on March 14 and had asked the parties to submit their additional inputs within March 25.
The RBI has endorsed ICA, which requires approval of 66% of lenders and relaxes the earlier requirement of 100% approval as a possible debt resolution mechanism in its submissions to the SC.
However, in submissions reviewed by FE, power industry representatives pointed out that 49 of the 85 lenders have not signed the ICA, which include 10 government-owned financial institutions such as LIC, Hudco and IFCI.
“Further, the RBI has defended the 100% approval requirement before the Allahabad High Court and Madras High Court, even after signing of the ICA,” the industry told SC, adding that “there is no explanation provided by the RBI for the delayed intimation to this court regarding the ICA and the inconsistencies.”
The circular in question stipulates a one-day default rule on term loans — borrower missing repayment even for a day will be treated a defaulter, and banks need to finalise a resolution plan for defaults of over `2,000 crore within the next 180 days, failing which insolvency process will start. The circular has been castigated for providing “one pill for all ills”, a rigid timeline of 180 days, ending all previous instructions, requirement for 100% agreement for reaching a resolution, for not leaving space for problems faced by individual borrowers on account of external reasons and for not distinguishing between wilful defaulters and genuine defaulters who suffer on account of severe regulatory issues.
Terming the “discriminatory treatment” meted out to the private sector generating companies (in terms of allocation of coal, railway rakes, power purchase agreements and payment security mechanism) as the “root cause of stress”, the Association of Power Producers said while some power distribution companies are buying power from NTPC plants at `5.30 – 5.68 per unit, private players are not finding buyers at `3.25 per unit.
The petitioners also said total outstanding dues from discoms have piled up to `40,846 crore, cramping their ability to buy coal to produce power. So, they are being forced to pay penalty for reduced electricity generation. Power producers also pointed out that the power ministry committee constituted to devise a pre-payment mechanism has not submitted its report in spite of the deadline for the same ending in early March.
As reported by FE earlier, on the final hearing the RBI had told the court that none of the petitioners (corporate defaulters) from a variety of industries like power, shipping and sugar could come up with any resolution plan that could be considered by banks. “It is apparent that they don’t have any resolution plans,” the RBI had said, referring to the leeway that was available to the firms under the court’s September 2018 order asking lenders not to act till further orders.