If SEBs paid Rs 36,300 cr of dues to private generators and also signed PPAs, the problem of bank overdues would go away
While it is still to be hoped the Supreme Court will take the right call on the challenge to RBI’s February 12 circular—and say that the matter is really in RBI’s domain—the government needs to ponder over its opposition to the circular and on whether RBI relaxing norms for, say, 6-8 months will help, especially when it comes to power projects. Relaxing the circular for the power projects, of course, is fraught with danger since it puts the entire Insolvency and Bankruptcy Code (IBC) resolutions at risk—the IBC, ironically, was introduced by this government—but, this apart, how will it help? Of the 52,000 MW of stressed power assets, around a fifth—10,600MW—are gas-based ones where the plants simply don’t have fuel since the government policy no longer accords the same priority to power plants when it comes to allocating scarce local natural gas. The plants can import gas, but that is very expensive, so the solution lies in the government giving a subsidy to lower the price or in an IBC-solution where, thanks to large haircuts in debt and equity, the plants’ costs reduce and they become viable even with imported gas. Another 10,000 MW of assets are stressed because they are based on imported coal and the price of this has shot up. This newspaper has argued (bit.ly/2Tca61A) that the problem originated in bad government policy, but that apart, a solution was first ordered by the Central Electricity Regulatory Commission (CERC) more than five years ago, but it went into a loop with the cash-starved state electricity boards (SEBs) not agreeing to the CERC formula that required them to absorb part of the coal-price hike.
Another 20,000 MW of power plants are stressed as they don’t have long-term power purchase agreements (PPAs) since SEBs are simply not signing them as they don’t have the money to do so. UDAY was meant to be a solution to the problem of loss-making SEBs but with ATC losses not falling in anywhere near the manner targeted—the target was unduly ambitious to begin with—and regulators not raising electricity tariffs to match costs, the SEBs remain cash-strapped. Allowing a bank-led resolution instead of an IBC-one—that is what staying the February 12 circular really means—could help some of these plants since IBC resolutions are becoming very time-consuming. But, apart from what that does to the entire IBC process, surely the solution has to lie in fixing the power mess? What is to guarantee SEBs will sign PPAs with these plants after the resolution?
Another 12,000 MW, or thereabouts, is in trouble because of huge overdues. While there is no breakup available for individual plants, as FE reported on Thursday, the normal overdues of SEBs to private sector generators has risen to `17,760 crore; another `4,300 crore is due to public sector generators like NTPC. There is, in addition, `18,500 crore of what are called ‘regulatory dues’ to these private sector generators. Regulatory dues are the extra costs that generators incur—and that need to be passed on to SEBs—due to the government imposing fresh tariffs/levies after the original PPAs were signed; this includes, say, a green energy cess or a port congestion surcharge. With each generator having to file a case in court for each such levy, and the dues mounting, in August, the power ministry even asked CERC to ensure that all such cases be cleared within 30 days. This, however, didn’t help since, as we have seen in the Tata/Adani imported-coal case, the case has already dragged on for five years. The Association of Power Producers has a list which details similar delays in other cases—22 months already in Sembcorp Energy, 40-66 months in various GMR power cases, etc. Trying to arm-twist RBI to stay its circular or seeking a court-led intervention is the government’s prerogative but the larger point is that it has completely failed to clear the power sector mess; all that it is doing is trying to kick the problem a few months down the road.