Cautioning that loans of around R2.3 lakh crore to private-sector power companies are on the verge of turning bad, public sector banks including the State Bank of India, Punjab National Bank and Oriental Bank of Commerce have sought the finance ministry’s intervention to salvage the situation and have been assured of help.
Even as a R2 lakh crore debt restructuring for state electricity boards/ distribution companies is about to take off, banks presented their case forcefully to draw an assurance from finance minister P Chidambaram that the matter would be taken up with the ministers of power, coal, petroleum and environment.
It is felt that since large investments are sunk into generation projects without being able to contribute to the GDP, defaults by power companies could be turn out to be a threat to the economy.
According to sources, the idea, therefore, is to remove policy hurdles and address delays in clearances to ensure there are no large-scale defaults from these power firms which have invested significantly, but are far from earning revenues.
Sources said banks have reminded the ministry that they had lent to private power companies on being prodded by the government and on assurance that policy issues would be resolved to make their business viable.
Punjab National Bank CMD KR Kamath told FE: “This is not an SOS call (to the finance ministry) but a concern is definitely there.” He added that with discoms unable to pay the power generators, the latter are finding it difficult to repay loans.” Power producers are troubled by lack of fuel linkage. Many power stations are not able to generate power, sell it and get returns on their investments. “Lack of raw material is causing a lot of stress,” Kamath said.
Banks raised lending to private power producers in the past few years, responding to the government’s policy focus on bridging the electricity deficit, an imperative for sustainable, rapid growth.
As per the National Tariff Policy, power projects needed to be financed through 70% debt and 30% equity. A power producer may contribute higher equity, but the electricity regulator CERC allows assured return on only up to 30% of equity.
Care Ratings MD & CEO DR Dogra said policy level issues – such as lack of coal and FSAs – have made power sector business a lot more tough to operate in. As per a Credit Suisse August 2012 report, 36 thermal power projects involving a debt of a little over Rs 2 lakh crore of private companies are now facing potential stress. Gas-based capacity of 14,000 MW is likely to come under stress, with an estimated bank debt of Rs 36,500 crore being sunk in these projects.
Companies’ projects facing potential stress include that of Adani (with debt of Rs 24,100 crore), Lanco (Rs 20,100 crore), Reliance Power (Rs 32,600 crore), Tata Power (Rs 14,400 crore), IndiaBulls (Rs 21,200 crore), Essar (Rs 21,900 crore debt), JSW Energy (Rs 6,700 crore), JVPL (Rs 15,500 crore) andKSK (Rs 6,000 crore), the report said.
Bankers, however, acknowledged that none of the debt to private companies has been admitted to the corporate debt restructuring (CDR) cell as yet, but the credit risks have increased.
“We need to resolve these issues urgently as these companies have put in huge investment and they are not generating any assets or earnings. These loans have not reached a stage to be referred to the CDR cell for restructuring. There is still time and we can save the funds,” said a senior banker at a PSB, asking not to be named.