Reviving Stressed Power Assets

Need for proactive efforts

The stress level in the Indian power sector has reached an alarming level on account of a variety of reasons such as fuel policy-related issues, excess/ easy availability of credit, poor planning in terms of balancing supply with demand, moderation in industrial demand and poor health of discoms. Experts are of the opinion that such stressed capacity could be around 50-70 GW. In monetary terms, the same translates into stuck financial resources of Rs 3,000 billion-Rs 4,000 billion, which is nearly 3 per cent of India’s GDP. This is a humongous waste of national resources. As a result, the power sector has the highest share of banks’ non-performing assets (NPAs).

Genesis of stressed power assets

Some of the major reasons for stressed power are feedstock uncertainty, irrational exuberance of project proponents and lenders, and moderation in industrial demand. Policy paralysis on the feedstock (coal and gas) front has contributed to the issue of stressed power assets the most. The easy availability of credit, coupled with the poor monitoring of asset quality aggravated the issue of bad loans. As shown in Graph 1, the year-on-year growth of power sector loans versus overall industrial loans demonstrates the lending exuberance in financial years 2011, 2013 and 2015. The outstanding loans of discoms as well as power purchase payables per unit sold are showing an increasing trend. It is an alarming signal from the discom efficiency point of view. Among various consumer categories, growth of industrial demand was the slowest during 2012-16. Poor project planning has contributed to the aforementioned policy, regulatory and industrial issues.

How big is the issue?

As per a Reserve Bank of India report, banks’ industrial credit as of January 20, 2017 was nearly Rs 26 trillion. Of this, the power sector’s share was the highest at close to 21 per cent. Stressed assets of the power sector, including restructured standard assets, were estimated at Rs 553 billion in 2015-16. This means that the recovery of 20 per cent of the loan amount is doubtful, which is a serious concern. The current capitalisation plan of Rs 100 billion as announced in the budget does not seem to be sufficient to tackle the stand-alone power sector bad assets, let alone the total estimated bad assets of Rs 1 trillion in the Indian banking industry.

Stakeholder views 

The views of stakeholders (banks, asset reconstruction companies (ARCs), special situation funds, independent power producers (IPPs), original equipment manufacturers (OEMs), etc.) were sought through a structured questionnaire covering five broad themes viz. reasons behind stressed power assets, challenges for revival, bankers’ mindset, attributes of revival prospects, constructive suggestions. The views emerging from the said primary interaction are presented below:

  • The feedstock policy coupled with wrong project planning were among the principal reasons behind the stressed power projects.
  • Lack of asset-specific strategies and sectoral issues are the main challenges for revival.
  • The inability of lead lenders to exercise step-in rights/equity control is one of the main reasons to initiate the revival proceedings.
  • Banks are willing to consider project cash flow specific haircuts in loan.
  • The mindset of lenders is the principle reason behind the hesitation of banks for selling NPAs to ARCs.
  • According to 32 per cent of the respondents, only 10-20 per cent of the total stranded capacity of 50-70 GW could be revived.

The suggestions for the revival of stressed power assets received during primary interactions with stakeholders are as follows.

Chief operating officer, reputed ARC

“A national pool of stressed power assets may be created, under the overall supervision of a central power utility. The majority of the capacity of such projects could be linked to a nearby/identified industrial belt.”

Senior vice-president, infra fund

“The framework of low tension power purchase by states (Cases 1 and 2) may be declared. Banks should be rewarded/ encouraged for realistic self-assessment for sustainable debt for each of the stressed accounts.”

Chief financial officer, independent power project

“Infrastructure NPA bad assets bank along with government stewardship can ensure the structured revival process. State generation companies backed by their respective governments, in view of their ageing capacities, could consider taking equity in stressed projects.”

Chief executive officer, independent power project

“Inefficient and environmentally non-compliant old capacity (mostly with state generation companies) may be retired to create space for new capacity. This will have two benefits: environmental commitment fulfillment and reduction in cost for end-consumers.”

Director, MNC investment bank

“Extremely distressed situations should be addressed in an unemotional and quick manner. Such projects should be taken over by the lenders and disposed of to a buyer or dismantled, and the equipment should be auctioned.”

Chief executive officer, large NBFC

“Timely action by stakeholders is not only the key for revival but also limits the haircut. However, this requires the aggrement of all stakeholders, which is a challenge.”

Deesha Power’s recommendations

  • New environmental regulations could be invoked to retire old and inefficient capacity of around 30 GW in order to make room for restructured capacity.
  • Low-hanging fruit may be identified and efforts need to be made to develop asset-specific strategies.
  • Part of the clean coal cess could be allocated for grants to commission studies and to develop asset-specific strategies.
  • Infrastructure asset reconstruction companies with longer period for value unlocking should be established. These would have an asset size of at least Rs 2 trillion. The time horizon for revival could be 12-20 years. The main revival strategy could be buy, revive and progressively unlock value under each case.
  • A conducive policy and regulatory framework needs to be established for the revival of stressed power assets. The Ministry of Power (MoP), the Ministry of Environment, Forest and Climate Change and state governments could work together on a comprehensive old asset retirement plan (Figure 1).
  • Banks need to take a dispassionate view of the ground situation and the possible recovery options including scrap sale in certain cases. This may provide new opportunities to investors, OEMs, technical service providers and law firms. Therefore, the private sector needs to strategise for bringing in requisite capital, innovative solutions and efficient management to tap the opportunities offered by stressed power projects.


It is a modest attempt from Deesha Power to share our thought process through this white paper on an issue of national concern. We hope that small steps, in terms of culmination of thoughts through this white paper, could start a long journey of resolution of stressed power assets with all stakeholders marching in the same rhythm, and hope that it will light up a million minds for proactive actions for revival of stressed power assets in the years to come. Deesha Power will be happy to add value to the decision-making process related to techno-commercial evaluation, market assessment and strategies for stressed power assets, and facilitate its on-the-ground execution. n

(This article is an excerpt from a white paper released at a conference, “Stressed Power Assets” organised recently by Deesha Power along with in Mumbai. For further details on the white paper, Shardul Kulkarni can be reached through email at


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