Alarm bells are ringing in the government over the prospect of NPAs (non-performing assets) rising in the power sector, prompting the power ministry to call top bureaucrats, heads of state-run lenders and CEOs of 25 private power companies for a brainstorming session on Friday.
The meeting comes within a week of the Parliamentary Standing Committee on Energy raising red flag over Rs 37,941 crore loans in the power sector turning NPAs, while Rs 60,858 crore advances stand restructured out of Rs 6 lakh crore loaned to the sector.
The panel said lenders had not shown prudence while considering loans for power projects and pointed out that 34 stressed power projects with a total capacity of over 40 GW account for some Rs 1.74 lakh crore outstanding debt as of June 2017.
The situation is a result of a combination of factors, ranging from fuel supply issues, unwillingness of state utilities to sign power purchase agreements with new projects, reopening of existing agreements and refusal to pay for increased fuel costs for imported coal-fired plants due to change in laws.
In such a situation, the RBI’s revised framework for resolution of stressed assets is going to dominate Friday’s discussion. The framework is expected to worsen the problem for 51,000 MW of existing generation capacity worth Rs 4 lakh crore and 28,000 MW of projects under construction.
The revised framework asks banks to classify even a day’s delay in paying loan instalments as a ‘default’. This doesn’t work for a large number of power plants, including those with adequate revenue flow, since they pay for coal in advance but utilities take 90-150 days to pay for the power.
Industry watchers said the proposed rescue plan for the Adani and Tata group’s imported coal-fired plants at Mundra in Gujarat will be the elephants in the room. Only last week, power minister R K Singh, who has called Friday’s meeting, told reporters that India’s biggest public lender SBI was “worried” about these projects”.
The projects have found themselves at the receiving end after changes in Indonesian law pushed up fuel costs but states refused to hike tariff. Finding the going financially tough, the companies last year offered to transfer their plants to the state government for Re 1. Read More