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The Non-Performing Asset generation of Rural Electrification Corporation and Power Finance Corporation worked out to “a significant 21.72 per cent of the amount disbursed during 2013-2014 to 2015-2016” according to the Comptroller and Auditor General of India.
This has been highlighted in the auditor’s report on ‘Loans to Independent Power Producers (IPP) by Rural Electrification Corporation Ltd and Power Finance Corporation Ltd’ that was tabled in the Parliament on Thursday.
The CAG also notes that REC and PFC could not ensure end utilisation of funds by the borrowers. The auditor noticed diversion of ₹2,457.60 crore by the borrowers/promoters in five cases.
Faulty tariff projections
The spurt in NPAs, according to the CAG, is because REC and PFC estimated a higher tariff at the time of appraisal of loan proposals. This resulted in the sanction of loans worth ₹8,662 crore in six cases where the levelised generation cost was higher than the actual levelised tariff. The faulty tariff projections rendered the viability of the project doubtful.
In a press statement, the CAG said: “Non-Performing Assets related to IPP loans, in both companies, increased sharply to ₹11,762.61 crore over the three-year period ended March 31, 2016.”
The CAG also said that promoters who did not have relevant sector experience were often found eligible for loans. This resulted in many of these projects not being completed within schedule. Further, the financial capacity of the promoters were not appropriately assessed, and promoters failed to bring in equity for the project in the face of competing demands.
Because of this discrepancy, nine projects had to be restructured multiple times, leading to increase in interest during construction by ₹13,312.78 crore in six and NPA of ₹3,038.44 crore in three loan cases.
The report notes that of the total NPAs, ₹10,360.39 crore (86 per cent) were NPAs recognised during the three years ended March 31, 2016. Considering that REC and PFC had disbursed ₹47,706.88 crore to IPPs during the same period, the NPA generation works out to a significant 21.72 per cent of the amount disbursed during 2013-14 to 2015-16.
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