Power sector rues assets going to NCLT; seeks regulatory leniency

Sitting on stressed power assets of over 40,000 MW, power producers across the country are seeking regulatory forbearance to resolve the issue. The sector has seen some power assets being considered for insolvency proceedings under the IBC.

Experts recommend a two-pronged approach to avoid insolvency cases. The first is to relax the RBI’s regulatory framework; the second is to roll out an action plan based on stress points.

The Association of Power Producers (APP) recently wrote to the Central Electricity Authority, suggesting ways to salvage a significant part of the stressed power assets headed towards the NCLT.

Persisting problems

Ashok Khurana, Director General, APP, maintained that taking the power producers to NCLT would not be the answer. “Even the new owner is going to face the same problems as we face. The change of ownership doesn’t help. If you sell these assets now, they will have high value erosion of up to 70 per cent. In two years, when all these issues are resolved, those who have taken these assets will make profits. This will cause a loss to the tax-payers’ money. We need regulatory forbearance to resolve the issues.”

The industry fears that about 75 GW (52 GW operational and 23 GW under implementation) will go to NCLT.

A Crisil estimate sees a haircut of about 60 per cent at an aggregate level for large stressed assets to arrive at a sustainable level of debt.

The Indian Banks Association and APP have requested relaxations by extending the sunset clause as on September 30, 2018; increasing the default reference date from one day to 30 days; changing the clause so that a resolution plan can be cleared if 75 per cent of lenders approve it (against the earlier 100 per cent); and extending the implementation period of resolution plan from 180 days to 365 days.

Underlining the long-term issues that have been plaguing the power sector, Harry Dhaul, Head, Independent Power Producers Association, said: “The recent Allahabad High Court order makes the authorities sit up and work in coordination to find out a solution. The problem doesn’t lie with the investors or the power projects, but it is the mechanism and systems. There are fundamental issues which by changing a promoter will not get resolved. This government has showed its resolve to do it. This mess is a long-time mess and it can be sorted out.”

Commercial issues

Kameswara Rao, sector expert from PwC, said that before the financial issues get addressed, the commercial issues need to be resolved first as they are the backbone of the sector.

“The investors are not wilful defaulters — they are victims of circumstances. Therefore, the government may need to resolve the commercial issues preferably,” he said.