Despite several of its loans to coal-fired power projects turning bad, public sector lender Power Finance Corporation and its subsidiary, Rural Electrification Corporation, continue to fund such projects — even though they are clearly not viable. This is the finding of a study by the Cleveland, US-based Institute for Energy Economics and Financial Analysis (IEEFA), an environmental advocacy think-tank which analyses financial and economic issues related to energy and environment.

“IEEFA views PFC’s lending to new existing or new thermal power developments extremely risky in the light of the expected tariffs on these projects being 60-70 per cent above the prevailing renewable energy tariffs of ₹2.50-2.80 a kWh. IEEFA questions how PFC can expect to get a viable total project return over the 40-year life of thermal power plants, given the uncomptetive tariffs these projects require,” the Institute’s research paper says, pointing out that the electricity sold by these thermal power projects is purchased by state-owned electricity distribution companies that are broke.

Risky loans

IEEFA notes that PFC’s consolidated accounts show non performing loans of ₹47,454 crore, making up 7.4 per cent of gross loan assets. The research note says that 29 projects funded by PFC are NPAs, and most of these projects are coal-fired power plants. It does not name all the 29 projects, but gives a few examples.

The 1,320-MW Meja Thermal Power Project in UP, jointly owned by NTPC and UPRVUNL (an arm of the Uttar Pradesh government) has been cited as an example of a risky project, to which PFC has lent ₹3,700 crore. The first unit, 660 MW, was commissioned in 2018, but within 18 months it stopped operations due to turbine problems. The second unit is yet to be commissioned.

Similarly, PFC has lent ₹1,700 crore to the 1,600-MW Yeramus power project in Karnataka, jointly owned by Karnataka Power Corporation and BHEL, which was commissioned in 2017. The project has suffered frequent coal shortage; the fuel has to be transported over long distances. IEEFA calculates the cost of transportation as ₹1.06-1.66 a kWh. “The plants also bear additional risk of coal unavailability during the monsoon seasons when mining and railway transportation become difficult,” IEEFA says.

Yet another example is the 1,600-MW Adani Godda Power Plant in Jharkhand, to which PFC and REC have jointly agreed to lend ₹10,075 crore. Adani proposes to import the coal for this plant from its Carmichael project in Australia, which is embroiled in several legal and environmental issues; the power is to be sold to Bangladesh. IEEFA estimates the tariffs for the power from the Godda plant would be about taka 8.71 a kWh (₹7.78) — “the highest tariff among all Bangladesh’s recent power procurement deals.”

The Institute says that about $40-60 billion are locked “potentially stranded” thermal power assets (according to the Central Electricity Authority, there are thermal power plants worth 60,916 MW under various stages of construction, with thousands of crores locked in them, but the expected date of commercialisation against many is shown as “uncertain”).

Ability to borrow under cloud

IEEFA sees PFC’s sources of funds drying up. Of the total borrowings of the NBFC of Rs 2,89,264 crore, 17 per cent came from international banks such as Barclays, Citi, HSBC, JP Morgan Chase, Mizuho and MUFC. “All of these banks have decided to exclude lending to new thermal coal mining and power plants,” notes the research paper, adding that “at some stage, PFC’s ability to access global capital markets will be impeded if it does not start to align with the Task Force on Climate-Related Financial Disclosures (TCFD).”

PFC did not respond to request from BusinessLine to react to IEEFA’s report.

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