Delays in implementing power projects, mainly due to fuel issues, could turn Rs 1 lakh crore of bank loans into NPAs if prompt action is not taken, according to a study by KPMG.
"Lack of financing and a poor pipeline is due to the current stalemate on various projects. Over 33 GW of projects are operating below 60 per cent plant load factor, mainly due to fuel issues. This could pose a risk to over Rs 1 lakh crore worth bank loans which could turn into NPAs (non-performing assets) if we don't take action quickly," KPMG said.
According to the consultancy firm, 33 GW of capacity in an advanced stage of readiness is either
tied up or under negotiation for supply based on competitive bidding.The power sector is heavily indebted and has one of the largest exposures from banks. Their loans to private power companies stood at Rs 1.57 lakh crore as of FY13, compared with Rs 30,251 crore in FY09, according to KPMG.
That apart, the exposure of banks to state-run distribution companies in the form of short-term loans stands at Rs 1.9 lakh crore. "For projects which have entered into PPAs (power purchase agreements) under existing competitive bidding guidelines, government should allow import of coal for the quantity equivalent to shortfall in domestic coal supply as per the signed fuel supply agreements (FSAs).
"Lack of financing and a poor pipeline is due to the current stalemate on various projects. Over 33 GW of projects are operating below 60 per cent plant load factor, mainly due to fuel issues. This could pose a risk to over Rs 1 lakh crore worth bank loans which could turn into NPAs (non-performing assets) if we don't take action quickly," KPMG said.
According to the consultancy firm, 33 GW of capacity in an advanced stage of readiness is either
tied up or under negotiation for supply based on competitive bidding.The power sector is heavily indebted and has one of the largest exposures from banks. Their loans to private power companies stood at Rs 1.57 lakh crore as of FY13, compared with Rs 30,251 crore in FY09, according to KPMG.
That apart, the exposure of banks to state-run distribution companies in the form of short-term loans stands at Rs 1.9 lakh crore. "For projects which have entered into PPAs (power purchase agreements) under existing competitive bidding guidelines, government should allow import of coal for the quantity equivalent to shortfall in domestic coal supply as per the signed fuel supply agreements (FSAs).
"These projects may turn into non-performing assets because of non-availability of fuel," KPMG said. The consultancy firm observed that quick implementation of government decisions is necessary. "The government should formulate a guideline on how the decision in respect of select projects can be implemented quickly. A speedy implementation of this decision will go a long way in reviving sentiment and the investment cycle," the report said.
KPMG has suggested that Coal India could issue a certificate for the shortfall quantity and the cost of imported coal procured against this approved quantum can be made a pass through by the regulator based on the guideline.
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