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Stressed Power Units: ‘Banks have to take more than Rs 10K crore haircut’

The banks would have to reduce the debt of Tata Power Project and Adani Power project by Rs 4,240 crore and Rs 3,821 crore, respectively, according to the HPC.

Business news, Tata Power, Adani Power, Essar Power, RBI, stressed power assets, indian express Three projects of Tata, Adani & Essar have a debt of over Rs 22K crore. (File)

To make stressed mega power projects of Tata Power, Adani Power and Essar Power viable, banks would have to take a haircut of more than Rs 10,000 crore, recommended the High Power Committee (HPC) set up by the Gujarat government.

The banks as well as the Gujarat government have not yet taken a decision on the various recommendations made by the HPC to resolve the issues ailing these mega projects that can be run on imported coal only and have a total generating capacity of around 10,000 megawatts (MW). According to a senior Gujarat government official, these three projects have a debt of more than Rs 22,000 crore currently.

According to the HPC, the banks would have to reduce the debt of Tata Power Project and Adani Power project by Rs 4,240 crore and Rs 3,821 crore, respectively. For Essar Power project, the HPC has suggested a haircut of Rs 1,154 crore but then it added that “lenders’ sacrifice may be higher as they may have to reduce the outstanding debt by around Rs 2,324 crore… to make the debt sustainable”.

Moreover, the HPC added that the lenders “will be reducing the interest rate also” on the debt of these three projects. State Bank of India (SBI), one of the leading banks that lent money to these projects, had requested the Gujarat government in January this year to form an HPC “for finding a resolution for the financial issues being faced” by these projects. Consequently, a three-member HPC was formed in July under the chairmanship of former Supreme Court Justice R K Agrawal.

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The lenders, in their submission to the HPC, stated that “the net worth is already wiped out for these projects, and these projects are primarily managing to survive on additional fund infusion by promoter groups”. The lenders added: “There is likelihood of further erosion in the credit worthiness of the generators and the projects may become non-performing thereby leading to further significant losses being borne/to be borne by the lenders.”

The lenders further stated that they are handling various stressed accounts in power sector due to multiple reasons and therefore, it would be desirable to resolve the issues pertaining to these projects with some efforts, rather than allow them to become insolvent. Currently, there are 34 stressed power assets of total 38,870 MW in India, according to the Ministry of Finance.

The HPC stated in its report: “The fuel cost under recovery, significant promoter level financial support, the fact that the equity in these projects has effectively been written off, and the overall operational constraints and financial challenges faced by these projects, have collectively resulted in the situation where these projects are not in a position to earn any return on equity (ROE).”

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These power projects are based out of Gujarat only. Since the commencement of operations, the projects have been facing hardship due to under-recovery in fuel costs. These projects were envisaged to receive coal from Indonesia for their operations. Indonesia is the largest supplier of imported coal in India due to its coal quality and logistical advantage.

The Supreme Court gave a ruling in April 2017 stating that the impact of high imported coal prices — which occurred due to Indonesian Regulations, 2010 — can’t be passed through to consumers as it was neither ‘Change in Law’ nor ‘Force Majeure’ as per the PPAs (power purchase agreements), which were signed with the distribution companies (discoms) of various state governments. ‘Force Majeure’ is a completely unexpected event that inhibits the party from fulfilling its contractual obligations.

First published on: 18-09-2018 at 01:16:23 am
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