Stalled power projects: Stressed asset funds under consideration for rescue

In view of financial woes of power project developers due to worsening of macroeconomic environment, govt has asked PFC and REC to explore possibility for creation of Stressed Assets Equity Fund & Stressed Assets Lending Fund.

Written by Anil Sasi | Published: March 8, 2017 1:11 am
 Stalled power project, thermal power projects, stalled power projects, PFC, REC, Stressed assets equity fund, Teesta urja ltd, power plants, financial stress power projects Illustration by C R Sasikumar

At last count, 17 under-construction thermal power projects aggregating to a capacity of 18,420 megawatts (MW) were reported as stalled due to financial problems of the developers. Alongside these, 17 stressed gas-based power projects aggregating to a capacity of 11,154.38 MW and 20 stressed hydroelectric projects totalling a capacity of 6,329 MW 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 (PFC) and Rural Electrification Corporation Limited (REC) have 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 project, for which work is currently 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 — REC, Housing & Urban Development Corporation Ltd (HUDCO), National Insurance Corporation Ltd (NIC), Dena Bank, IFCI Ltd and Edelweiss ARC — 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. Besides these two instance, efforts to turn around stranded power projects has failed to gather much steam.

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. Government estimates for the April-December 2016 period show that the average Plant Load Factor (PLF) of the thermal power stations in the country slid to a decadal low of 59.64 per cent (it was 61.58 per cent during the corresponding period of the previous financial year). 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.

This is reflective of the sharp slide in the gross domestic product (GDP) growth rate from the near double-digit growth 10 years ago to the current level of around seven per cent — a result of industry operating at far lower than optimal capacity — forcing the PLF of the thermal power stations in the country into a steady tailspin, down from 78.9 per cent in 2007-08 to 62.29 per cent about in 2015-16.

The consistent dip in the load factor — a broad measure of a power plant’s output during a period of time as compared to its maximum output — is a consequence of the capacity addition growing at 13.7 per cent annually in the three years to 2015 even as consumption grew at a measly six per cent. The slide is evident in the numbers, considering that the national average PLF of coal and lignite-based power generating stations has come down from 73.32 per cent in 2011-12, 69.93 per cent in 2012-13, 65.55 per cent in 2013-14 and 64.25 per cent in 2014-15, before slumping further to 62.29 per cent in the last financial year.

Interestingly, during the first quarter of the current financial year (April-June 2016-17), the PLF had actually improved to 63.4 per cent, before dipping in the subsequent two quarters to take the average for the three quarters to under 60 per cent, largely due to a good monsoon season.

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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