Money & Banking

Emission control: Banks wary of funding thermal power plants

K Ram Kumar Mumbai | Updated on October 10, 2018 Published on October 10, 2018

Coal-based power producers may find it difficult to meet the new emission standards target as banks are reluctant to give loans to buy equipment required to control emission.

These power producers have to comply with new emission standards by 2022. However, bankers fear that if they lend more to the thermal (coal-based) power producers (TPPs), many of them stressed, to help them meet the new environmental norms, they may end up throwing good money after bad.

The Power Ministry has asked banks to consider proposals for additional loans from TPPs so that they can comply with the revised emission standards.

To meet the new emission standard TPPs have to install or upgrade various emission-control systems such as flue gas desulfurisation system, electro-static precipitators, according to the ministry.

“TPPs have to install emission control systems to combat environment pollution. For that they will have to make additional investment. Now, as many of the power sector accounts have already become non-performing, no bank will want to take further exposure,” said a senior public sector bank official.

He elaborated that if the power sector accounts are getting sorted out and management change has happened under the IBC process, then banks won’t mind financing installation of emission-control equipment. So, banks will fund some of these projects, which are already under resolution.

Recovery issue

“Now, suppose we fund a TPP, which is stressed, for upgrading the plant and after that we don’t recover the money, we will be held responsible,” said a senior Bank of India official.

“No public sector undertaking wants to take a decision on taking over stressed assets, including power sector assets, with banks. There is the fear of CVC (Central Vigilance Commission) and CBI (Central Bureau of Investigation).

“We will be happy to fund NTPC if it wants buy these power assets. If NTPC wants to buy ₹40,000-50,000 crore worth of power assets, raising money is no big deal for them. But then the problem is they will be worried about CVC and CBI. All of us are worried,” said the banker.

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Published on October 10, 2018
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