The Modi government, which has extended a 10-year tax holiday for new power projects and substantially raised public investment in national highways and state roads, is also looking at creating two asset reconstruction companies (ARCs) to salvage troubled projects in the these sectors.
The ARCs, which will have specialised knowledge of the revenue models and problems faced by the two sectors, will buy out distressed assets, turn them around and sell them off. In the power sector, where projects with a combined capacity of 76,000 MW are hit by fuel shortage, public sector NTPC will be the majority stakeholder in the proposed ARC.
Although all of NTPC’s projects are outside the tariff-bidding regime — which is the norm for private players — and it has access to states’ share in the Centre’s funds, the purchase of stressed assets could dent its balance sheet, analysts said. The government, however, believes the PSU is better placed to turn around/complete stressed power projects where R3.33 lakh crore investments are sunk.
Power sector PSUs such as NTPC will hold majority stakes in the proposed ARC for the power sector, and banks will be minor equity holders, financial services secretary GS Sandhu told reporters on Friday Similarly, in the ARC for the roads sector, the National Highways Authority of India (NHAI) will will be the majority stakeholder, while banks will hold minor stakes, he said.
NTPC, which has R18,000 crore of surplus funds, along with other cash-surplus PSUs, has been asked by the finance ministry to either invest these funds to create new assets or pay higher dividends. Since setting up new plants would be take time, especially given the delays in various clearances, and given the current coal scarcity, the government reckons that in the interim, the PSU could use its surplus to buy stressed assets and use its expertise to revive them.
Sandhu said specialised ARCs are required as existing ARCs do not have the expertise to manage power and road sector assets, which need a “different kind of handling”.
For more than a year, NTPC has been out in the market to acquire private players' distressed power plants, although it hasn't concluded a deal yet.
“The ARC can help certain type of distressed assets that are stalled for resources or consents, providing relief to the promoters and banks, and use NTPC's expertise to turn around. Several power assets are, however, distressed for reasons such as adverse regulation or cost