Independent power producers claimed that their payment defaults to banks are largely on account of factors beyond their control. The Independent Power Producers Association of India (IPPAI) has made their case in written submissions to the Ministries of Finance, Coal, Petroleum & Natural Gas, Power and the Reserve Bank of India (RBI).

This representation was sought after the Allahabad high court ordered the RBI and the government arms to allow a relaxation to power producers from the new stringent debt servicing norms that were mandated by a February 12 notification of the RBI.

“The issue of stressed assets in for power producers has arisen, in many cases, due to extraneous factors such as fuel shortage, sub-optimal loading, untied capacities, absence of Fuel Supply Agreement and lack of Power Purchase Agreement, Payment defaults by Power Procurers, regulatory issues.” the IPPAI noted.

Pointing out their concerns with the RBI circular, the IPPAI said, “The RBI provides incentives for banks to go for change of management, thereby putting restructuring by existing promoters at a disadvantage. As an illustration, the latest RBI circular dated February 12, 2018, specifies that in cases of restructuring, 20 per cent of the outstanding principal and capitalised interest have to be repaid before the account is classified as standard, while in case of change of management the same is immediately upgraded as standard.”

According to the IPPAI, this the immediate upgradation of an account is a very compelling factor for banks and therefore banks do not prefer restructuring. This is again a postponement of the critical issue, and the new promotor will face the same issue in future. These measures are just short term fixes, while the basic problem continues to persist.

“It can be seen that, even in cases where promoters are not wilful defaulters and the project has suffered due to reasons beyond the control of the promoters, the regulations are promoting only change of management, thereby wiping out the complete equity of the existing promoters (which in most cases is public money). This in not justified and therefore needs to be changed in the interest of justice, entrepreneurship and the economy,” IPPAI noted.

comment COMMENT NOW