Allahabad High Court on Monday refused to give power sector companies a special waiver from the Reserve Bank of India’s (RBI) February 12 circular.
According to the Reserve Bank of India's (RBI) February 12 circular, all stressed loans over Rs 2,000 crore have to be resolved by the banks in six months or taken to the National Company Law Tribunal (NCLT). The six-month deadline ended on August 27.
Nearly 25 power plants which can generate up to 20,000 megawatts of electricity are staring at an uncertain future. These plants which owe the banks over Rs 1.5 lakh crore may be taken to the insolvency courts.
Ashok Khurana, Director General at Association of Power Producers, RK Bansal, MD at Edelweiss ARC, Anil Razdan, former power secretary, Anil Swarup, former secretary, ministry of coal discuss the future of power companies.
Watch: UDAY has to be implemented in letter and spirit for the good of power sector, says former coal secretary
Edited Excerpts:
What would you say is a low hanging fruit in terms of a solution?
Khurana: I will start that at least Allahabad High Court has accepted our contention by saying that the power sector is completely regulated and they have no control over various elements and the stress is due to external factors. It puts the ball back in the court of government because all these factors are controlled by the government.
As you have read out the figures, to my mind, if the steps are not taken, about 32 GW should get referred to NCLT in next one months’ time. The assets which can be bought over or which have the potential to buy over are about 12 GW.
The low lying fruit is what you stated, is the under-recovery. Today, we have about 12 GW of under-recovery assets which are basically power sold, not paid, and the regulatory assets.
The regulatory assets are about Rs 18,000 crore of pending payment and approximately Rs 14,000 crore of power sale. Now if you see, on Monday, power ministry issued a very clear order, the direction under 107, which clearly says and lays down that the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs) should declare the cases of change in law items and establish a procedure for payment within one month. That is a very positive step if the regulators take it positively because 107 is not binding on them.
So if these directions can find place in the tariff policy which is work in progress, then we will give it a legal force and then it will bound by all the CERC and SERC. You save about 12 GW by that and 12 GW by the sale of assets. So you are saving 24 GW.
There is a high powered committee with the cabinet secretary. Do you think they can just give these orders at the end of two months? The states are also sovereign and I think they are cash trapped, will this be obeyed?
Swarup: That is not the question, the question we have to look at the cause of what has happened. We have not looked at the cause. You are talking about the low hanging fruit, we will get the low hanging fruit and go back to square one few years down the line.
Let us try and understand what is the reason for the problem that we have today.
The problem arises out of the issues in the discoms. I am not very sure whether UDAY happened or not. It was merely postponement of a problem and the other factors that were in UDAY, were not implemented. The solution is available.
Gujarat has done extremely well. We have been talking about the Gujarat model in other activities, I think that needs to be replicated elsewhere in the country. Look at the credit rating of the Gujarat discoms.
So the problem that I see is that we are not looking at the reason for the losses that they are making, we are not looking at the rationalization of the tariff and we are not looking at the payments that are not being made to these power generation companies.
Merely passing orders by CERC or somebody else, if the discoms do not have the money, where will they pay from? So the underlying pinning principle is that they have to look at discoms and UDAY has to be implemented in letter and spirit. Unfortunately it wasn’t so.
The model, as I said, is there in Gujarat, they went into the details of each supply chain and then they found solutions for it. The similar model could have been adopted. In fact, Uttar Pradesh started with that about a couple of years ago, I do not know what has happened, because that is the way forward.
Merely looking for low hanging fruits and directives from CERC is not going to solve the problem.
Can you elaborate a bit more of what was the model that was exactly followed by Gujarat and how it could be implemented in the rest of the country as well?
Swarup: First of all they endured and found out where the losses were. Right now most of the states do not know where the losses are. They have bundled it together, they do not even audit where the power is going. So all is clubbed and saying the power loss is happening in the agriculture sector. It is not true.
They have separate feeders in Gujarat, they have separate auditing, they have ensured supply, they have revised tariff, they have done all that is required for a discom which has not been done in other states.
They have, in fact, incentivised people where the recovery is better, they have named and shamed people who are not paying up. There are clear-cut prescriptions available within the country. I am really surprised why isn’t the Gujarat model being implemented in the country?
What would you tell the cabinet secretary, what can be a solution? Anil Swarup has given a bunch of solutions, but they should really be given to the state capitals.
Razdan: I really feel that this has come about going to at least half a dozen reasons. We had assumed a certain demand, we had projected a certain demand for the economy, and that demand is not fructified with the result that much power is not flowing out to consumers as was assessed earlier.
Secondly, we have had a tariff regime which has not been even-handed. The power ministry has tried to sort it out a bit, but I would say that we should go about it in a more rational manner in the sense that we are going on adding capacity, it is high time that we called a halt to capacity.
We should recalibrate our renewable energy programme also, dovetail it with Make In India because after all these are national assets, national wealth. We are not making the entire equipment in India, we are pressing ahead for a cleaner energy form by giving it out to another country. So that is one issue.
State Bank of India (SBI) was telling us that they are very close to solutions in some plants, but other banks have not signed and that is probably because the haircuts are high. Do you think there is a fear of the same, Central Vigilance Commission (CVC) and Comptroller and Auditor General (CAG) that two years down the line they will be told why did you accept a 70 percent haircut, is that a fear as well?
Bansal: I think today when we are talking of resolution that fear of CVC is certainly less when all the banks are deciding together. The issue here is whether in NCLT I get a better price than this? Most likely no.
So I think that may not be a big worry. The worry is, basically, I would put it in two parts. You were asking about a solution I am more worried about two types of projects. The banks what they are trying to find a solution in those cases where there some partial power purchase agreement (PPA) or full PPA and at least the plants are working and they are complete.
However, let us look at the two segments here. One is the gas-based power projects and the second is incomplete projects. I think if you take them to NCLT, they will end up mostly in liquidation or scrapping maybe. As a country whether we want that tomorrow after three-four years when we need these power plants when the demand goes up, I still feel as a nation I think we should try to protect.
RBI is mainly worried about provisioning. So let us say you do the provisioning, but at least protect these plants. Gas based plants will be very good once we go more for renewable. As Anil Razdan was also saying, I think we need to recalibrate that.
However, you have built up so much renewable capacity, you will need these gas-based power projects basically for peak time management. So I think we should protect at least these two types of assets I feel.
I just want to understand will we really see buyers for these 40-80 assets that have been said to be put under NCLT, are there enough buyers on the lookout of these assets?
Bansal: I agree there are a limited number of players in power sector and this is the one sector perhaps no overseas player will like to come because of too much involvement of government from every side, whether it is coal, whether it is buying the power, paying the dues, or even otherwise.
Every issue actually is more of government intervention. So we have to depend on mainly domestic players whether it is Tata’s, Adani, or JSW.
The issue here is there will be buyers, but there will be a buyer for those projects only where they have at least full PPA or at least 50 percent PPA. The difficult part would be those projects which are either incomplete or they have no PPAs, and the second is these gas-based power projects. That is what I was telling these will be very difficult to find a buyer today.
You said Adani, but the Adani themselves are not operating their Mundra plant because every time they operate it, they are undergoing a loss. Do you think they will offer to buy and if it happens, banks will want to sell to them because they would worry that it will land up again in the NCLT considering that they have their own power problems?
Bansal: Mundra has a typical problem which is applicable to Tata, Adani and Essar Group. These three power plants in a different category altogether. It is These companies are depending on imported coal and its prices have gone up and they are fixed tariffs.
Other than these, I think Adani’s are running all power plants and that is why I think banks are considering their offer in at least two cases. I feel those resolutions should happen.
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