The idea to create a power asset management company (PMAC) for managing and turning around stressed, but viable assets, is facing operational challenges as central public sector enterprises (CPSEs) in the power sector are divided over the roles and responsibilities of such an entity. The Power Ministry has been mulling over creating a dedicated PMAC for the resolution of non-performing assets (NPAs) of the state-run power sector NBFCs — PFC and REC. A concept note on the same was floated with the stakeholders including the CPSEs. The assets being considered include eight power generation projects and one transmission project. Most of the generation projects are thermal.

How it works?

A senior government official explained that the objective is to take over viable projects and management for maximising the asset’s value. The PMAC will take over such projects through a bidding process or through a change in management. Besides, it could also acquire such assets through the NCLT route. “Such an entity will engage an operational partner for operations and maintenance (O&M) as well as to complete the construction. It will empanel agencies which are interested in managing the assets and will call for bids from such agencies. These agencies can also become a partner by acquiring equity along with the PMAC,” the official added.

Reservations

However, CPSEs such as NTPC, Power Grid and NHPC have expressed reservations on creating a PMAC as their roles and responsibilities could clash with that of the entity, another official said. They pointed out that the PMAC should be in accordance with the Department of Investment and Public Asset Management’s (DIPAM) capital management guidelines which has suggested CPSEs to invest in green field projects and avoid brown field private sector projects. It also increases confusion as the DIPAM has been advising CPSEs to avoid acquiring stressed assets. Besides, the department’s opinion is to be taken for M&As as well as taking over a company. NTPC does not seem to be in favour of creating a PMAC with the O&M being outsourced to expert agencies like itself or NHPC, the same official added. “Instead NTPC suggested taking over stressed assets by a consortium of lenders with NTPC, NHPC among others as technical partners with nominal stake. Besides, AMCs would be subject to regulatory compliances like the core investment company test for classification as NBFC. Another drawback is that there will be establishment costs at the holding company level,” he said. NHPC, on the other hand, said that the PMAC bidding for projects in NCLT will create another competitor for the hydro power generator, which is not advisable. It suggested that such projects, whether thermal or hydro, should be taken over by PSUs working in the similar domain. “Another issue is that there may be conflict of interest as REC and PFC shall be equity holders of PAMC and at the same time are lenders of the stressed assets. Besides, assurance of success through NCLT cannot be certified,” the official said, explaining the comments made by NHPC. Power Grid favoured a similar approach like NHPCs, the official said adding “NHPC suggested that CPSEs under PAMC can invest directly in SPVs belonging to assets in their domain as the PSUs will be in a better position to utilise their domain expertise to make these SPVs operational and commercially viable,” he added. THDC India, which runs the Tehri Hydro Power complex, as well as North Eastern Electric Power Corporation (NEEPCO) and Satluj Jal Vidyut Nigam (SJVN) favoured the proposal. However, NEEPCO suggested creating a PMAC for hydro and thermal as well as a separate one for transmission projects.

Stressed projects

In March 2017, the Department of Financial Services (DFS) shared a list of stressed projects with the Power Ministry. The 34 non-captive coal-based power projects in the list are mostly private and have a total installed capacity of 40,130 megawatt (MW). Of these, 17 projects (20,290 MW capacity) have been resolved, while seven projects (9,310 MW capacity) are at various stages of resolution. Another 10 projects (10,530 MW) are at the very initial stage of construction and are totally stalled and have either been ordered to be liquidated or are heading towards liquidation.

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