Editorial March 2018

One of the key points on the government’s agenda this month was the issue of stressed assets. The power minister held a meeting with heads of leading independent power producers (IPPs) to discuss various issues such as the new Reserve Bank of India (RBI) norms for stressed assets, which have created panic in the sector.

In an important circular issued in February 2018, RBI has stipulated that from March 2018, banks are required to identify stressed assets in a timely manner and they will have a strict 180-day timeline during which insolvency proceedings must be initiated (thereafter, banks will have no choice but to move the National Company Law Tribunal for bankruptcy proceedings within 15 days).

With a substantial chunk of stressed assets, the power sector is worried that these new guidelines would result in more bad loans and a higher number of assets (not just thermal, but solar as well) slipping into the non-performing category. There are some 60-70 GW of power projects that could fall into this category as per industry estimates. Power producers claim that most of these projects suffer from issues that are beyond the control of developers, such as non-availability of coal, lack of long-term or medium-term power purchase agreements, delayed payments by discoms and delays in regulatory approvals
for claiming compensation.

Some action has been taken regarding stress alleviation measures for the sector this month. To save some of these assets, the power sector’s two biggest lenders, PFC and REC, are reportedly coming together to form a joint venture, along with equity participation from other PSUs. The JV will acquire these stressed assets and sell them later or operate them when the demand situation improves. Meanwhile, a government panel has recently reviewed 34-odd stressed coal-based power projects with an estimated debt of Rs 1.7 trillion and suggested measures to resolve them. Further, in the meeting with IPPs, the power ministry has reassured power producers that it would take up the issue of new guidelines with the finance ministry and RBI, while also looking at other issues such as irregular payments by discoms and faulty coal price indexation among other things.

Whether a faster resolution can be worked out or not is a key question on everybody’s
minds as the short window of just six months given by RBI for resolving these issues may
not be enough, say industry watchers.

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