Battling stress across the supply chain, the power ministry has called a meeting of all leading power sector companies to be represented by their respective chairmen along with finance ministry officials and sector lenders. The meeting comes in the wake increasing insolvent projects in the power sector, tepid demand growth, and coal scarcity.
Among the leading players that will participate in the meeting on Friday, March 16, are Tata Power, Adani Power, Essar, Vedanta, Semcorp, CLP India, GMR Energy, L&T, JSW Energy, Jindal India Power, Jaypee Power, Hinduja Group, Hindustan Power, Rattan India, Bajaj Energy and Reliance Power.
The meeting would have a representation from different government departments and public-sector companies. The chairman of the Railway Board, secretary in the coal ministry and the department of financial services (ministry of finance) would be chairing the meeting, along with Minister of State for Power and New & Renewable Energy R K Singh. Among the PSU heads will be those from NTPC, lender Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), Central Electricity Authority (CEA) and also secretary Central Electricity Regulatory Commission (CERC).
The issues under consideration would be coal availability, lack of long-term power purchase agreements (PPAs) form states, stranded gas and hydropower projects. “The most important issue under consideration is the recent RBI guideline which would land more than 80,000 Mw of projects under insolvency route,” said an executive.
In a notification issued by RBI recently on ‘Resolution of Stressed Assets — Revised Framework, it mandated banks to classify even one-day delay in debt servicing as default. The notification mandates resolution proceedings against stressed accounts to be completed in 180 days.
Power generation assets, which are stressed are unable to find buyers due to several regulatory hiccups involved. There has been no long-term power purchase agreement issued by any state in the past 4 years, hurting the bottom line of generation projects. At the same time, coal supply has been eased through several government schemes but is yet to uplift languishing power generation. Several years of cases filed in regulatory commissions and courts are also a hurdle for the potential buyers.
The stress in power industry has left the State Bank of India, country's largest bank, with 30 per cent share in the stressed assets of private power producers. Punjab National Bank (PNB) has the second largest chunk of the total debt exposure to these projects which totals to Rs 1,440 billion. PFC despite being an NBFC is expecting close to 11 per cent of its loan book to go under insolvency route. PFC and other lenders are expecting a haircut of more than 50 per cent when the assets go through the insolvency route, this paper reported.
More than 25,000-MW of stressed capacity in thermal power is on sale outside of Insolvency and Bankruptcy Code (IBC). Business Standard reported recently that these assets are not finding buyers. Most promoter companies of the projects — some operational and others still under development — want to exit to lighten their debt.
At the same time, the growth of hydro-power has remained stagnant at 14 per cent share in the energy mix, less than solar and wind now. Also, 24,000 MW of gas-based power projects are stranded for lack of cheap domestic gas. Power ministry recently issued a notice that power producers will have to fend for gas supply and the government will not start any scheme.