26 Jun 2018
Private power producers on Monday flagged the preferential allocation of coal blocks to public sector units vis-a-vis private players as one of the major reasons for piling up of huge bad assets in the sector.
Submitting additional inputs on stressed assets to financial services secretary Rajiv Kumar, private power producers have argued that the allocation of coal blocks to state-owned units without auction have distorted competition and contributed to the financial stress of private players.
Private producers have been seeking a more liberal time frame under RBI’s February circular that mandates early detection and time-bound resolution of stressed assets (of all sectors). However, the central bank last week refused to give any special relief to the power sector.
Power producers, however, have highlighted “factors beyond our control” – irregular payments from electricity distribution companies (discoms), shortage in fuel supplies and delay in raising power tariffs by regulators – for the stress in the sector and sought the breather. As many as 22.5 GW of power plants, or about a third of the stressed power assets, have become unviable due to non-availability of regular domestic coal supply, according to an industry estimate.
In a meeting last week, convened by the finance ministry following a directive of the Allahabad High Court, stakeholders were asked to submit additional inputs on their demands by Monday. Factoring in all these inputs, the department of financial services is expected to call another meeting soon.
The RBI’s February circular requires banks to finalise a resolution plan in case of a default on large accounts of Rs 2,000 crore and above within 180 days (irrespective of sectors), failing which insolvency proceedings will have to be invoked against the defaulter.
Since the deadline for the resolution of the first set of such cases is end-August, power producers have been seeking urgent relief. The circular also stipulates a one-day default rule on term loans, which mandates treating a borrower who misses repayments as a defaulter the very next day.
The Association of Power Producers (APP) wanted an extension of the August 2018 deadline for formulation, approval and implementation of resolution plans to February 2019 by expanding the 180-day period to 365 days. Power minister RK Singh has earlier said the time frame to implement a resolution plan is ‘impractical’.
A fifth of Rs 10.3-lakh-crore gross non-performing assets in the banking system belong to the power sector. The finance ministry had earlier written to the RBI seeking relaxation of the circular for all sectors.
Power producers had approached the HC to seek relief. The HC last month gave an interim reprieve to stressed power projects by ordering that no action could be taken in their cases under the RBI circular until the finance ministry called a meeting of relevant stakeholders in June to see if the issues could be resolved.
For his part, power secretary Ajay Kumar Bhalla had said in the last week’s meeting that any resolution plan that was to be worked out must keep in mind the electricity supply-demand dynamics for the next 10 years, as the country was moving towards the high demand/high supply scenario from the moderate demand-high supply phase.
While refusing a special relief to the power sector, the RBI is believed to have favoured expeditious resolution of sector-specific issues by the government and the firms themselves.
Source: Financial Express