Union Minister Piyush Goyal assures solution to power sector bad loans

There are a total of 35,900 MW of thermal and hydro projects that have been categorised as ‘stressed assets’ with resultant bad loans in the power sector weighing heavily on the country’s banking sector.

By: ENS Economic Bureau | New Delhi | Updated: June 13, 2017 8:40 am
Piyush Goyal, power sector, Power sector bad loans, power sector NPA Power Minister Piyush Goyal

Piyush Goyal, Minister of State for Power, Coal, New and Renewable Energy and Mines, Monday said the Centre is close to finding a solution to tackle the problem of financially stressed assets in the power sector, with focus likely on cases where no significant irregularities are detected or where the promoters are not found to be wilful defaulters. There are a total of 35,900 MW of thermal and hydro projects that have been categorised as ‘stressed assets’ with resultant bad loans in the power sector weighing heavily on the country’s banking sector.

“We have had very extensive engagement amongst all stakeholders, particularly bankers and financial institutions like REC and PFC, and all different officials of state governments and central government. We have come very close to a resolution mechanism for at least those stressed power plants where the promoters are not found to be wilful defaulters or where we do not find any significant irregularities,” Goyal told reporters.

As many as 17 under-construction thermal power projects, aggregating to a capacity of 18,420 MW, are stalled due to financial issues, while another 17 gas-based power projects, aggregating to a capacity of 11154.38 MW, are categorised as ‘stressed’, according to government data till end-February.

In addition, a total of 20 hydro electric projects, aggregating to a capacity of 6329 MW, are struggling due to financial issues. Adding to the problem is the fact that the plant load factors (PLF) for private sector projects remains weak at around 55 per cent, with merchant tariffs remaining depressed at Rs 2.5 per unit (kWh). Options on the table include converting the stressed assets to national assets and seeking the assistance of state-run NTPC Ltd to operate these plants once they are taken over by banks.

According to a Credit Suisse report dated February 16, 2017, the stress in the power sector is rising and is likely to continue. “Stress within the power sector continues to rise, as the EBITDA (earnings before interest, taxes, depreciation and amortization) of larger companies for the sector is declining 13 per cent YoY (year on year) and 18 per cent QoQ (quarter on quarter) and net profit is falling 7 per cent YoY and 34 per cent QoQ… There have been no PPAs (power purchase agreements) signed during the quarter either and stress is likely to continue rising,” it said.

Goyal said: “The bankers are taking very proactive measures to take over such plants which have defaulted and we are working with bankers to find a win-win solution where all stakeholders in this sector will benefit. More particularly, out of the resolution of these NPAs, we are assuring the nation that the final beneficiary would be the consumers because we will be able to further bring down the average purchase price of state utilities.”

On the stressed hydro sector projects, he said: “We have asked the state governments if they take over the stressed power plants, or if the bankers take it over, then we can look at finding solutions to resolve the problems related to stress in hydro power projects also keeping in mind the economic viability of these projects.”

On June 7, the minister had said that he wanted to convert the stressed assets to national assets and NTPC had offered to operate the stressed power plants once they are taken over by the banks.

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