Change in Accounting Standards sought to keep units from NPA classification

In 2012, nearly 9,500 megawatts (MW) of gas-fired power stations are expected to remain stranded for want of fuel. This may force banks and other financial institutions which have offered loans to these projects to declare them as non-performing assets (NPAs).

Such a move would not only burden the lenders but also affect the balance-sheets and investments of the power developers. For every megawatt of power, a gas-fired plant requires an investment of Rs 4-4.5 crore. Generally, most of the power projects are financed by 30 per cent equity and 70 per cent debt.

As on June 30, the country had 18,903 MW of installed gas-based power units, according to the Central Electricity Authority (CEA). “The plant load factor of these units has come below 50 per cent and nearly 2,000 megawatts are ready but do not have gas even to for trial runs,” said a senior CEA official.

According to Association of Power Producers (APP), the current gas-based capacities stand at 21,325 MW and another 6,500 MW would be ready by this year-end. “Of this, nearly 9,500 MW of capacity would have zero gas supply,” said Mr Ashok Khurana, Director-General, APP. Mr Khurana blames the dwindling gas supplies from KG D6 for plants operating at suboptimal capacity of 20-70 per cent. “This has lead to an average plant load factor of just 43 per cent. The situation will not change immediately,” he added. Currently, 30 mmscmd (million metric standard cubic metre per day) is being produced from RIL-operated KG D6 gas-fields. The total domestic gas output is 115 mmscmd and 45 mmscmd is imported. Of the 160 mmscmd gas supplied, about 60 mmscmd goes to the power sector.

The power sector does not use imported gas because it is expensive and the excess cost cannot be passed on to end-consumers.

To prevent the projects from turning into NPAs, private power producers have approached the Ministry of Corporate Affairs (MCA) for change in Accounting Standards 10 and 16, to allow provisioning of capitalisation of borrowing cost for the stranded gas-fired power units.

At the same time, these companies have also urged the Finance Ministry and the Reserve Bank of India to introduce suitable amendments in the guidelines to allow for shift in commercial operations date up to three years without requirement for re-structuring. This is based on the claim that the delay has been for reasons beyond the control of power project developer.

(This article was published on July 20, 2012)
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