Lenders equity conversion move has given breather to Essar Power Gujarat: Group CFO

The decision of 12 lenders of Essar Power Gujarat Ltd (EGPL), an SPV of Essar Power operating 1200 MW imported coal-based power plant at Salaya, Gujarat, led by State Bank of India (SBI) to convert part debt into equity is a first step to find a long-term solution for the project, according to Essar Group’s Chief Financial Officer V Ashok.

The lenders recently invoked an SDR-like provisions and converted 51 per cent shares of the company pledged with them into equity, with remaining 49 per cent being left with Essar Power.

The decision comes as a result of discussions that Essar Power has been having with lenders after the the Supreme Court in April denied the compensatory tariff to imported coal-based plants of Tata Power and Adani Power (Essar Power filed the same petition before the Gujarat Electricity Regulatory Commission) therefore, making all three plants operating on Indonesian coal with total capacity of 10,000 MW unviable.

EPGL’s debt currently stands at ₹4,500 crore with interest cost being at around 13 per cent.

“It is the industry issue and not just the issue of Essar. Three significant players have got involved in this, and all of us are fighting the battle,” Ashok told BusinessLine. He added that lender’s decision to invoke SDR-like provisions, which provides EGPL for a standstill period of 18 month within which a buyer for the lender’s stake should be found, will help Essar to maintain the value of the company as well as operations of the plant, while it will help banks to protect their balance sheet.

Earlier in June, EGPL had requested Gujarat Urja Vikas Nigam Ltd (GUVNL), the parent body of the Discoms in Gujarat, and various government officials to consider either renegotiating the terms of PPA signed in 2007 or taking over 51 per cent equity of EPGL and purchase power from EPGL on cost plus basis.

“The working group was formed, NTPC has completed the due diligence of all the plants so that Discoms can decide on taking these assets over, so there is action taking place,” Swapnil Jain, CEO of EGPL, told BusinessLine.

EGPL joins long list of thermal power assets currently on block which both promoters and lenders are struggling to sell as investors’ outlook towards power industry remains negative.

The industry issues such as cancellation of coal mines and non-allocation of coal linkages, reluctance of Discoms to sign new power purchase agreements (PPAs), continue to impact Essarr Power’s newly commissioned and under-construction projects. The Unit II of its 2x600 MW Mahan power plant commissioned in August has so far secured PPAs for just 25 per cent of its capacity. The company also has two stalled projects including a 1200 MW plant in Jharkhand and part of 120 MW plant in Odisha.

“There has to be some direction from the government that the cases of all these unfinished projects needing funds to complete have to be addressed in some manner,” Ashok said.