PSU companies roped in to rescue stranded assets in power sector

According to government data updated till March 2017, a total of 17 under-construction thermal power projects aggregating to a capacity of 18,420 MW were reported as stalled due to financial problems of the developers.

By: ENS Economic Bureau | New Delhi | Published:July 28, 2017 1:05 am
NLC India Ltd, NLC India stressed asset, Public sector banks assets, power sector assets, NLC debt, Ragunathpur Thermal Power Station, Business news, Indian Express n In the first three quarters, the operating requirement of coal and lignite thermal power plants — mainstay of India’s electricity grid — dipped under the 60-per cent mark, a 10-year low. (Representational)

State-owned power utilities such as NLC India Ltd are being drafted in to salvage stranded assets in the country’s power sector. Chennai-based NLC (formerly Neyveli Lignite Corporation) has identified the first phase of Damodar Valley Corporation’s Ragunathpur Thermal Power Station’s 1,320 megawatts (MW) project, designated a stressed asset, for acquisition. NLC has also shortlisted other stressed assets — GMR Group’s 1,370 MW coal-fired project in Chhattisgarh and Ind-Barath Power Infra’s 700 MW plant in Odisha — for possible acquisition to augment its power generation capacity.

Thermal major NTPC Ltd has also been sounded out to offer assistance to banks in operating stressed power-generating assets taken over by lenders during the course of the bankruptcy proceedings.

The power ministry had recently reviewed the status of 34 “stressed” coal-fired thermal projects, with an estimated debt of about Rs 1.77 lakh crore. According to government data updated till March 2017, a total of 17 under-construction thermal power projects aggregating to a capacity of 18,420 MW were reported as stalled due to financial problems of the developers.

Alongside these, 17 stressed gas-based power projects aggregating 11,154.38 MW and 20 stressed hydroelectric projects totaling 6,329 MW were reported to be stuck due to financial issues, cumulative investments worth about Rs 1.9 lakh crore (based on conservative estimates of Rs 5 crore per MW for thermal projects and Rs 7 crore per MW for hydro) hang in the balance.

Amid mounting numbers of projects stuck on account of funding issues, state-owned lenders Power Finance Corporation Limited and Rural Electrification Corporation Limited have also been asked by the Centre to explore the possibility for creation of a Stressed Assets Equity Fund and a Stressed Assets Lending Fund to rescue some of these projects, for which work is underway.

Even as the number of stranded projects are on the rise, there has been limited success in turning around stuck project so far, with two notable instances standing out during the last four years. In August 2015, stalled hydro project — Teesta-III (6×200=1,200 MW) in Sikkim that was being executed by private sector entity Teesta Urja Ltd (TUL), was acquired by the Sikkim government through an increase in its shareholding in TUL from 26 per cent to 51 per cent. Work was subsequently restarted in October 2015 and five units of the project have now been commissioned. The second instance involved PFC as the lead financial investor along with six lenders in the consortium acquiring majority equity of 51 per cent of shares of Shree Maheshwar Hydel Power Corporation Ltd with effect from June 1, 2016, through partial invocation of pledged shares as well as partial conversion of PFC’s sub-debt into equity.

The financial woes of power project developers have been accentuated by the worsening of the macroeconomic environment, considering that during the first three quarters of the current financial year, the operating requirement of coal and lignite thermal power plants — the mainstay of India’s electricity grid — dipped under the 60-per cent mark, a 10-year low. Reason: Sluggish industrial load resulting in the projected demand for electricity trailing the pace of commissioning of new power projects, alongside a pick-up in the addition of renewable projects to the country’s energy mix.

The subdued macroeconomic environment notwithstanding, the government has taken a slew of steps to expedite the completion of such stressed power projects, an official in the Ministry of Power said. The steps include the re-allocation of 49 coal blocks supporting capacity of about 50,000 MW through auction and allotment till date after the cancellation of 204 coal blocks after a Supreme Court ruling. Also, a separate e-auction window was opened for the supply of coal to power sector for power plants that do not have coal linkages or are not able to draw coal due to non-availability of the power purchase agreement or PPA, to get fuel.

The Centre, the official said, has also notified policy guidelines for grant of ‘bridge linkage’ to specified end-use plants of the central and the state public sector undertakings that have been allotted coal mines and blocks.

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