Revise your Feb 12 guidelines on stressed loans: Power producers to RBI

Illustration by Binay Sinha

Power producers have asked the Reserve Bank of India (RBI) to revise its February 12 guidelines on doing away with some earlier debt reorganising instruments, such as Statutory Debt Restructuring (SDR) or the Scheme for Sustainable Structuring of Stressed Assets (S4A).

They have asked that where these had already been invoked, the provisions be allowed to be carried over, at least for 12-18 months. The revised framework, they also feel, should provide for implementation of a resolution plan (RP) if approved by 75 per cent of lenders by value, in line with the Insolvency and Bankruptcy Code. And, that the schedule for an RP needs to take into account the receipt of regulatory or government approvals -- in many cases, projects are held back for this reason.

In a letter to RBI, the Association of Power Producers say the new guidelines majorly dis-incentivise any loan restructuring in the segment. These, instead, push for sale and change of control for an entity in some difficulty on loan payment. Thus, raising the risk for developers and equity investors.

Also, that the list of financial difficulty signs should be more objective. In the appendix to the February 12 circular, RBI had identified 11 of these, including the failure or anticipated failure to make timely payment of instalments of principal and interest on term loans, delay in meeting the commitment in this regard and crystallised liabilities under letters of credit and bank guarantees.

RBI has said in respect of accounts with aggregate exposure of the lenders at Rs 20 billion or above, on or after March 1, including those where a resolution might have been initiated under any of the existing schemes, as well as accounts classified as restructured standard assets, an RP will be implemented within 180 days from the reference date. If in default after the reference date, 180 days from the date of the first such occurence.

Such cases have to be mandatorily referred to the National Company Law Tribunal (NCLT) for IBC proceedings. APP says if a loan has been restructured as part of an RP, the asset will remain sub-standard in the lender's books till 20 per cent of the loan is repaid. "Usually, it would take four to five years for repayment of the 20 per cent for infrastructure projects and, therefore, banks would have to continue with provisioning (for the stressed asset) for four to five years. This means banks would have little incentive to implement restructuring proposals," went their letter. APP says the new timeline is difficult to comply with and the implementation period of an RP should be extended from 180 days to a year.

The producers say there were at least 75,000 Mw of assets either under operation or under construction which are under stress. The reasons includeless availability of coal, lack of long-term or medium-term power purchase agreements (PPAs) and divergence between policy and regulations on pass-through of costs. They also note the total of dues from power distribution companies are Rs 8,300 crore, with payment delays of around four months.

Coal India, for one, supplies only 60 per cent of what is required under a long term PPA. Additional procurement of coal under e-auction is not compensated.

In this context, they have stresses that power generation companies are one part of the value chain. Supply of fuel asuch as coal, railway evacuation, transmission and distribution of power to consumers are all controlled by government agencies. Power developers have to pay in advance for coal procurement, its transportation to the generating unit and transmission of power. While payment from distribution companies takes four to five months.

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