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Notwithstanding the recent ₹90,000-crore relief package for power distribution companies, aimed at providing liquidity and enabling payments to various Gencos, the country will have to brace up to addressing the issues relating to about 45-50 giga watt (GW) stressed thermal power assets.
The progress on stressed asset resolution has been slow till March 2020 due to long lead time to achieve a sustainable resolution, absence of new long-term power purchase agreements (PPAs) and subdued thermal plant load factor (PLF) levels.
According to Girishkumar Kadam, Sector Head & Vice-President, Corporate Ratings, ICRA, “Given the prevailing Covid pandemic, resolution of stressed assets is likely to slow down further, for majority of thermal assets which are impacted due to lack of long-term PPAs.”
Demand hit
The lockdown has adversely impacted electricity demand and the average thermal PLF since March 24. The demand slowdown is likely to lead to a contraction in electricity demand in FY2021.
Kadam told BusinessLine , “The decline in demand is expected to suppress the thermal PLF on an all India level to about 54 per cent in FY2021 against our earlier estimate of 60 per cent and from about 56 per cent in FY2020. Further, the lockdown has adversely impacted the revenues and cash collections for the power distribution utilities (Discoms).”
The lockdown-hit finances of discoms heightens the counter-party credit risks for the generation entities.
Within the thermal sector, generation entities with no long-term PPAs and with exposure to short-term market remain highly vulnerable as against the entities with long-term PPAs, given the considerable dip in energy demand as well as spot/short-term traded power price levels.
Lokesh Vasudevan, Partner, Brahmayya & Co, commented “Power Sector has been the major contributor to NPA owing to high leverage, and this is bound to worsen going forward. It is imperative that their needs are met immediately. The quickest way to address this issues, is to repay the dues owed by Discoms to the power generators. With PLF being the lowest in the decade, protecting the generators’ interest assumes highest importance”.
“As of April 2020, out of 230 GW of thermal capacity, nearly 40-50GW plants were under stress with an overdue payment of about ₹94,000 crore from Discoms. This is likely to increase due to the recent reforms announced for Discoms,” Vasudevan said.
Coal India has provided some relief on payment terms to ensure continuous supply during lockdown. Additionally, PFC and REC will infuse ₹90,000 crore to Discoms at lower interest rate and the loans will enable discharging liabilities to the gencos.
India Ratings and Research believes the ₹90,000-crore bailout package would only provide a temporary relief to Discoms. The loans will be provided to discoms against guarantees by state governments and will be used to clear their liabilities. However, this benefit has not been extended to Discoms for payables towards the State Gencos.
Sources said the impact of the stressed power assets would be felt on the resolution process taken up under the Insolvency and Bankruptcy Code. Their valuations could come down further and those which have already gone in for liquidation could be adversely impacted.
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