Stressed power assets cannot be accorded differential treatment as banks have a massive exposure of Rs 3 lakh crore in these projects, mostly in the private sector. If one-day default norm is operative in other sectors, how can the Reserve Bank of India (RBI) provide a special dispensation for power generation companies that have messed up with assets over the years? Should this happen, every other industrial sector facing a liquidity crunch would make demands on the RBI to provide ‘easy’ repayment terms even as banks and financial institutions grapple with lakhs of crores in NPAs.
Most power generation companies have over-leveraged their balance sheets. Besides, many of them have pledged their potential earnings to banks without generating a single unit of electricity. Two successive UPA governments contributed to the mess in the power sector and that included the scam in the allocation of coal blocks and later resulted in the cancellation of licenses.
Power producers have often highlighted non-availability of fuel as a key issue for generation assets becoming sitting ducks with no returns accrued over years. Most of these projects bagged through tariff-based bidding should have factored in fuel availability, assured linkages and taken business risks accordingly.
Several power companies with dedicated coal blocks sold fuel in the open market and made a killing while they delayed construction of power generation assets. Many power companies made ambitious projections on sourcing local fuel, imports and even sharing coal blocks with other corporates that have dedicated allocations. But these claims bordered on adventurism not pragmatism. To cite fuel shortages now is unacceptable.
Limited capacity of state distribution companies to make payments was well documented even when generation assets were being built on borrowed funds with no assurance on power generation. The financial limitations of discoms have suddenly become central to a faulty narrative peddled to justify that power generation capacities were stressed.
Indeed, stressed steel assets that were referred to the National Company Law Tribunal (NCLT) had also faced fuel and payment issues. But then, steel assets were either resolved through competent plans or were sold out to new promoters. If that is the benchmark, why should RBI accord special status to power generation assets sitting idle? The Supreme Court and the Allahabad High Court must allow due resolution process to happen by August 27, the deadline set for dealing with stressed assets.
Power secretary Ajay Bhalla is right when he points at a multi-pronged strategy put in place to deal with stressed power assets. About 8,000 MW of capacities have been salvaged through dedicated coal supply contracts signed by state-run Coal India under Shakti scheme though the government was under no obligation to do so. Fourteen other stressed power assets may have to go through the NCLT. Twelve more
projects that have been completed after inordinate delays may be put up for auction by the lenders and restructure
the loans. RBI is right in denying extension of deadline if it were to follow the Insolvency and Bankruptcy Code in letter and spirit.
Promoters of stressed power assets cannot expect only banks to make all sacrifices, take hefty haircuts while they seek to retain control on companies with cleaned up balance sheets. Existing promoters will also have to take responsibility, chip in with own assets, companies’ funds or enable new promoters to come up with fresh business plans for resolution along with takeover.