India Considers Joint Venture Between Largest Power Producer, Financiers To Buy Stressed Plants
India is considering a proposal for a joint venture between the nation’s biggest electricity producer and two state-run power financiers to bid for stressed power assets, one of the largest contributors to the nation’s bad loans.
The Power Ministry is looking at the proposal by the state-run National Thermal Power Corporation Ltd., Power Finance Corporation Ltd. and the Rural Electrification Corporation Ltd. for jointly floating an entity to bid for assets under the new Insolvency and Bankruptcy Law, RK Singh, the minister in charge, said in New Delhi today. “We will examine it in consultation with the Finance Ministry and creditors. It will be a facility whereby we will tell bankers that they don’t need to go for a fire sale or distress sale.”
Of the total loans worth Rs 5.59 lakh crore to the power sector, Rs 37,941 crore had turned bad and another Rs 60,858 crore were restructured as of June last year, PTI said citing a report by Parliamentary Standing Committee on Energy earlier this month. There were 34 stressed power assets with an overall capacity of 40 gigawatts and an outstanding debt of Rs 1.74 lakh crore.
Indian banks’ bad loans, at more than Rs 8 lakh crore, are expected to rise after the Reserve Bank of India on Feb. 12 mandated banks to classify even a one-day delay in debt servicing as default. For accounts with an exposure of Rs 2,000 crore or more, lenders will have to ensure that a resolution plan is in place within 180 days after a ‘default’.
The stricter norms may push 60,000-70,000 MW power projects towards bankruptcy proceedings, Ashok Khurana, director general at the Association of Power Producers, had said. These plants are under stress due to lower availability of coal, lack of medium- and long-term power purchase pacts, divergence between policy and regulations on pass-through, delays in regulatory orders and pending receivables from distribution companies.
The power minister said the three-way proposed joint venture can run such stressed plants and when the demand improves, creditors can decide to sell them at a better valuation. The objective is to avoid stress in working plants, he said.