Supreme Court and government interventions may help to salvage only 13 GW of stressed power plants
PB Jayakumar September 13, 2018
The Supreme Court's stay on Reserve Bank of India's initiative on insolvency proceedings against stressed power assets may give a lifeline to about 13,000 MW of stressed power assets heading for insolvency, but it will be a herculean task to save majority of the estimated 60,000 MW of troubled power plants.
Apart from the stay, the stressed power plants were also given another breather recently, when the high-level empowered committee constituted by the Prime Minister's Office allowed retaining fuel supply agreements (FSAs), Power Purchase Agreements (PPA) and long-term transmission network access rights. When a company is referred to the National Company Law Tribunal (NCLT) for insolvency, these agreements stand suspended or cancelled. The high power committee's decision to waive this clause was to allow these projects get a fair valuation.
"The current decision of the Supreme Court may give a few months more time, at least till November, for bankers and stakeholders to salvage about 13 GW of projects, as the government is taking many favourable policy decisions and bankers will get time to resolve issues of many of these projects under stress," says Ashok Khurana, Director General, Association of Power Producers (APP).
Industry sources point out that of the 34 stressed projects with loans of about Rs 1.77 lakh crore, less than 20 have proper PPAs and fuel supply agreements in place. In most cases, the PPAs or FSAs are for less than half the planned capacity.
Bankers had earlier tried to resolve issues of about 12 power plants under a 'Samadhan Scheme' but could not conclude deals due to various issues with different stake holders and large debt baggage with these projects. These were Lanco Anpara Power, Jaypee Power Ventures (Nigrie), KSK Mahanadi Power, Coastal Energen, Avantha Power, Jindal India Thermal Power, SKS Power Generation, Prayagraj Power Gen, RKM Power Gen, IND Bharat Utkal and Ideal Energy. These have projects worth a cumulative 12,640 MW and are likely to be the immediate beneficiaries from the stay and the empowered committee decisions.
Industry sources say many of these 12 projects having proper PPAs and FSAs can be saved without much effort with ownership changes, one time settlements and hair-cuts by banks. Those with partial FSAs and PPAs can be an attraction for buyers with deep pockets and are ready to wait for 3-4 year period, to recover and stabilise these power plants, as thermal energy is still one of the cheapest and abundant form of energy in Indian conditions.
They point out that the courts, government, banks and other stakeholders understand the current mess with the power sector is an outcome of systemic failures and wrong policy decisions over the years and the entire blame should not be on the project developers.
It is estimated that the discoms owe power producers more than Rs 35,000 crore for the power sold, Rs 3000 crore given as advance for coal and rail, Rs 14000 crore is mired in regulatory issues etc, they note.
Industry sources say the whole issue started in the 2004-09 period, when power plants were given coal linkages for over 1,30,000 MW of power, when actual delivery position was not even 30,000 MW. Similarly, the Central Electricity Authority's (CEA) demand projections went off target by over 42 per cent. While power plants came up, setting up of adequate transmission and distribution lines remained neglected, which led many plants to limit production or idle capacities.
When coal shortages, mine cancellations and less demand gripped the sector and financial health of discoms went from bad to worse post 2009, many of the power producers who did not order boiler, turbine, generator (BTGs) stalled their projects. Those who gave advances and made investments were forced to continue with the projects, which finally went into a stage beyond redemption.Industry sources claims except for 2-3 plants that may have abnormal costs, almost all projects were done with quality equipment and maintaining global standards.