With a big chunk more of than 43,000 MW of power capacity in trouble either for want of fuel or the prohibitively high cost of fuel, it’s not surprising lenders are an anxious lot. The losses are piling up and unless the plants turn viable soon, the loans given by them could turn toxic. Lenders are looking to bypass a Supreme Court ruling against a compensatory tariff for Tata Power and Adani Power, both of whom run plants in Gujarat that are fuelled by imported coal. They’re re hoping to reach an understanding with discoms on the tariff without violating the terms of the Supreme Court’s verdict. State Bank of India, for instance, is understood to have sounded out the Gujarat government for help. It has suggested the state government import the coal on its own and supply this to three units in the state—those of Adani Power, Tata Power and Essar Power. It would then need to pay the power producers only the fixed cost portion of the tariff, which is approximately 40% of the total cost.
This means state government would bear any losses arising out of changes in the prices of imported coal. Few state governments, if any, would want to take on a financial risk of this nature. And while Gujarat has no reason to be concerned with the investment in the plants or the debt, it would worry about job losses were the units to be shut down; in general, the closure of three power plants is bound to hurt the local economy. An earlier proposal, put forward by Tata Power, that the Gujarat government take over its Mundra plant in entirety for a token amount has, so far, not been accepted. Should the Gujarat government not be inclined to accept SBI’s proposal, some other solution will need to be found. The stakes are indeed high. Some Rs 60,000 crore has been invested in the three power plants, while the combined outstanding debt is close to Rs 50,000 crore.
Media reports suggest that lenders such as PFC and RFC are looking to rope in power producers, like NTPC, to form a company to take over stressed assets. This is, in principle, not a bad idea provided the joint venture makes realistic bids for the assets taking into account the haircuts on outstanding loans and also taking care to see the cost of running the plant isn’t prohibitive. Firms such as NTPC have a relatively strong balance sheet, and, consequently, the lenders would feel more than comfortable with a joint venture of this kind. However, the key to making power plants viable is the availability of affordable fuel, whether coal or gas. Without this, plants could remain unviable no matter who the owner is, even after large haircuts on loans and completely writing off the equity.