The Lok Sabha’s Standing Committee on Energy is on a weak wicket when it says the RBI’s “guidelines … should be reviewed and a pragmatic and genuine mechanism be explored instead of changing the management … Change in management should be considered only after it has been established with certainty that the negligence on the part of the management is the sole reason for the stressed state of affairs of the project”. Apportioning negligence, and ascertaining its impact on a project isn’t easy, especially since some promoters manage to do well in the same set of circumstances, but what matters from a bank’s point of view is to get its money back—if this can happen once the company’s management changes, so be it; and if this rule of only-negligence is adopted in the power sector, why should it not for other sectors? And, if the promoter feels it was bad policy that did him in, like not getting a gas allocation, let him sue the government in court. It is not the business of banks to bankroll promoters for alleged failures on the part of the government, no matter how egregious the failure. Where the committee is right, though, is that if the problems are not addressed quickly, the new promoter will have a tough time, though perhaps less, because of the haircuts inherent in the insolvency process. The committee report talks of 34,000 MW of stressed power assets—15,700 MW are being constructed—where there are no PPAs (8,300 MW) or there are other problems like lack of coal linkage (7,700 MW) or the coal blocks are under dispute (3,800 MW).
A presentation by the Association of Power Producers (APP) has even more frightening numbers, and talks of 19,700 MW of private sector power projects that are complete but have no PPAs and 20,700 MW in the case of projects under consideration. Another 11,700 MW, APP says, are stressed due to regulators not allowing them to charge what the law permits, and so on. A Rs 900-crore subsidy, it claims, can allow 10,600 MW of gas-based power plants to run at 45% capacity, enough to at least service their debt. Most of the problems, needless to say, are the result of incomplete reforms. A Coal India monopoly is mostly the reason for the shortage of coal, though this is now being addressed; the Railways, similarly, remain an unreformed monopoly. And very limited electricity reforms has meant SEBs remain too broke to buy power—the overall PLF of thermal units is down from 79% in FY07 to 60% in FY17—and prefer to do load-shedding instead of supplying more power; while the private sector added 53,700 MW of capacity in the last five years, just 7,200 MW of PPAs were signed. Ideally, with ATC losses supposed to come down to 15% in FY19, this would have made SEBs more solvent. And, because tariffs would come down due to the cut in ATC losses, demand would also rise. Though UDAY hasn’t yielded the results it was supposed to, nor have the accompanying schemes —DDUGJY and IPDS—power minister RK Singh is trying to hold the states to their UDAY promises. So, he’s trying to frame rules to ban load-shedding except that due to technical faults and to ensure regulators don’t take into account ATC losses of more than 15% while setting tariffs and, more recently, he asked lenders—like REC and PFC—not to lend to SEBs that have more than 15% ATC losses. Whether Singh will succeed remains to be seen, but without major reforms, the new owners of stressed power assets will also be stressed, as will the banks that lent to them.