Paying heed to the Reserve Bank of India’s (RBI) advice to improve operational efficiency of companies whose loan accounts have gone sticky through induction of new owners or managers, the government has lined up a plan under which cash-rich public sector undertakings like NTPC, Coal India, Power Finance Corpn and Rural Electrification Corpn will buy equity stakes in stranded power plants.
The country added an average of 20,000 MW annually to its thermal power capacity over the last five years. But lower-than-projected growth in demand, fuel shortage and the inability of debt-laden power distribution companies to enter into new long-term power purchase agreements (PPAs) have left a sizeable portion of these new capacities stranded. According to an estimate, a total of 25,000 MW capacity — commissioned or under-construction — is lying idle for want of buyers or assured fuel supply agreements. Tenders for just 11,000 MW have been floated by the states since 2011 for new PPAs.
Dwelling on resolution of non-performing assets, the RBI had said: “Creative search for new management teams, including the possible use of public sector firms or private sector agents, is necessary, as are well-structured performance incentives such as bonuses for meeting cash flow/ profit benchmarks and stock options.”
“NITI Aayog and Power Ministry are currently in discussion to see if PSUs such as NTPC and PFC can take over small projects,” a senior government official said. As on March 31, 2016, NTPC’s reserves and surplus stood at Rs 80,536 crore, PFC’s 34,445 crore, REC’s 27,630 crore and Coal India Rs 27,581 crore. A senior NTPC official said that no official communication has been received by the company about the plan and he enumerated several possible problems with such buyouts. “If the banks convert their loan into equity and looks for a buyer then NTPC can step in but there are always doubts regarding possible over-invoicing in buying projects directly from the private companies,” the official said.
While private power plants are left high and dry, lack of buyers is not affecting NTPC much as it had signed PPAs a capacity of 37,000 MW between October 2011 and January 5, 2011. That was just before the central electricity regulator made it mandatory for states to adopt competitive bidding for signing PPAs. As of now, NTPC capacity pipeline would itself be able to meet new demand from states, analysts said.
NTPC has an aggregate capacity of around 24,000 MW under implementation including 10,000 MW of renewable capacity to be commissioned by 2019. This translates into a capex of about Rs 1.6 lakh crore. NTPC has also formulated a long-term corporate plan to become a 1,28,000 MW company by 2032, while its current capacity of over 47,000 MW. The government wants the Maharatna to use inorganic route as well to meet this target, rather than relying completely on greenfield projects.
“The power sector is going through a phase of consolidation. This presents an opportunity for PSUs also to use their balance sheet and acquire some stressed assets, possibly at a discount,” another government official said. He cited the instance of JSW, which recently bought non-PPA assets from JSPL at about Rs 4 crore/MW.
The stressed assets (gross NPA and restructured loans) of public sector banks rose from Rs 7.46 lakh crore (14.62% of gross advances) as on March 2016 to Rs 7.83 lakh crore (15.74%) as on June 2016. The sectors that have high incidence of NPAs include power and roads. It is estimated that loans of about Rs 1 lakh crore to the power generation firms are under stress.
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