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How Supreme Court's Essar Steel verdict could offer relief to struggling power firms

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Power sector has been making headlines, albeit for wrong reasons. The decline in power generation for three consecutive months coupled with record low plant load factor (PLF) at sub 50 percent level underscores the weakness in power demand.

How Supreme Court's Essar Steel verdict could offer relief to struggling power firms
Power sector has been making headlines, albeit for wrong reasons. The decline in power generation for three consecutive months coupled with record low plant load factor (PLF) at sub 50 percent level underscores the weakness in power demand. This, at a time when index of industrial production (IIP) is at an eight-year low with a contraction of 4.3 percent in September, points to systemic weakness in the economy.
Despite several efforts from the government such as opening of letter of credits etc, the health of distribution companies continues to plummet while their outstanding dues continue to mount. The slow resolution of stressed power assets has compounded matters further. According to ratings agency ICRA, only 10 percent of the financially distressed coal power plants have been able to resolve their outstanding debt so far. Banks had about Rs 1.74 lakh crore of stressed outstanding loans to India’s coal-fired power generators as of last year, according to the State Bank of India.
However, the problems of power sector may be closer to a resolution following the Supreme Court's landmark ruling in the Essar Steel case where it restored the primacy of committee of creditors in distribution of funds between different sets of creditors of a bankrupt firm.
Sanjiv Nandan Sahai, who took charge as secretary of the power ministry earlier this month, has said that while they are still evaluating the impact of the Supreme Court judgment, he is hopeful that the resolution process would accelerate going forward.
Sahai also talked about an institutional reform for discoms aimed at bringing down the outstanding dues. He said: “We may bring a tribunal or we may bring a committee which is empowered to enforce those
On reports that Power Finance Corporation might be asked to lend afresh to power discoms, the power secretary clarified that PFC will not give loans to discoms until there is a clear trajectory in which discoms are going bring their overdues. The clarification soothed the sentiment of the stock holders of PFC  as investors were worried that additional loans to discoms would adversely impact the financials of PFC.
The power secretary also asserted that he is not overtly concerned about the recent decline in power generation as he is confident of the long term power demand in the country.