Says ‘those with deep pockets could bag projects for a song, resell them to make a killing’
A parliamentary panel has said the Reserve Bank of India’s (RBI) February circular that mandates early detection and time-bound resolution of stressed assets is “discriminatory in approach to the existing promoters” and asserted that any forced sale of power assets through insolvency proceedings “would be baffling and disastrous”. In a seeming endorsement of the stance taken by the ministries of power and finance, the parliamentary committee on energy has recommended that the central bank amend its guidelines to “make them amenable in an unbiased manner” to adequately address the sector-specific issues encountered by independent power producers, and salvage the electricity sector out of the ongoing stressed asset scenario.
The committee observed that in case of a forced sale via the insolvency law, “the deep pockets may enter the fray, stake their bids, pocket the projects and later when the demand for the electricity goes up, they will sell these projects at high prices and siphon off the money without doing anything”.
Recently, the highest offer of Rs 2,500 crore quoted for GMR’s 1,370-MW thermal power plant in Chhattisgarh under the insolvency resolution process has put the cost of the plant at Rs 1.8 crore per MW, significantly lower than the actual figure of Rs 6 crore per MW.
The panel said the stress in the power sector, saddled with bad assets worth Rs 3 lakh crore, are caused by factors beyond the control of power producers, including non-availability of fuel, slower-than-expected growth in power demand, burgeoning dues from the state-owned power discoms due to their weak financial health and the promoters’ inability to infuse additional funds. “Specifics and realities of the sector should be taken into account for appropriate modulation of the RBI guidelines,” said the report that assessed the impact of the RBI’s circular on the power sector.
The RBI’s February circular stipulates a one-day default rule on term loans, which mandates treating a borrower who misses repayments as a defaulter the very next day. It requires banks to finalise a resolution plan in case of a default on large accounts of Rs 2,000 crore or more within 180 days (irrespective of sector), failing which insolvency proceedings will have to be invoked against the defaulter. Since the deadline for the resolution of the first set of such cases is end-August, power producers have been seeking urgent relief.