Following the Allahabad High Court order on June 1, the finance ministry must meet with all stakeholders to come up with a solution for stressed power assets in a month’s time. However, unless RBI decides to provide lenders with forbearance, the only way these units can be salvaged is if they are bought over by power producers. It is not clear whether the finance ministry will request the central bank for forbearance. Even if it does, RBI should not agree to provide any, even though banks are vulnerable to big haircuts on their approximate exposure of `1.8 lakh crore to these stressed assets.
The central bank, on February 12, directed banks to classify as “stressed” any account on which a borrower had defaulted, even for a day. Lenders were then required to come up with a resolution plan (RP) for aggregate exposures of `2,000 crore or more within 180 days of the default, failing which they had to initiate insolvency proceedings under the IBC within 15 days. The interim finance minister, Piyush Goyal, rightly said on Monday that the insolvency process under the IBC should not be interfered with. If RBI allows lenders forbearance for the power sector, it will set a precedent and prompt others to ask for similar benefits. The fact is that lenders have initiated insolvency proceedings against very large companies, and power units cannot be given differential treatment.
The government has only itself to blame for the woes of the power sector because it has pampered the state electricity boards (SEBs) for decades, allowing them to pile up debt and run up huge losses. At one point, the Rajasthan SEB had accumulated losses of some Rs 80,000 crore. Although their losses under the UDAY scheme have come down by about `17,352 crore, state discoms still owe power generators Rs 32,071 crore; of this, Rs 27,832 crore has been overdue for more than 60 days.
This is one big reason why private sector generation assets are becoming unviable; the other is the lack of fuel linkages and PPAs. In fact, discoms could become even more cash-strapped once the new ‘change in law’ provisions on pass-through costs are cleared by the electricity regulators, as they would need to pay gencos another Rs 8,000 crore. The government must now pressure state discoms to pay up; else, some 70,000 MW of assets set up at a cost of `3.5 lakh crore are in danger of being sold at half this cost. Instead of leaning on RBI, the Centre must insist on errant state governments—Uttar Pradesh, Maharashtra, Tamil Nadu, Karnataka and Telangana—coughing up their dues now. If they can give farmers loan-waivers, they can surely pay back the power producers.