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Home News Power Sector News Relief for power sector as Allahabad High Court halts RBI’s NPA order

Relief for power sector as Allahabad High Court halts RBI’s NPA order

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RBIIn a major relief, the Allahabad High Court  put on hold action against the power sector under the RBI’s stressed assets framework.

By its February 12 circular, the Reserve Bank of India had asked banks to scrap all debt restructuring mechanisms and begin the resolution process if a company delays payment even by a day. While this circular was meant for all companies, the Allahabad court decision is limited to the power sector. It, however, excludes wilful defaulters from getting any relief.

The court also directed the Finance Ministry to hold meetings with all stakeholders in June to consider the grievance of power producers and see if any solution outside the RBI’s resolution process is possible.

The order comes in response to a writ petition filed by the Independent Power Producers Association of India (IPPAI) challenging the RBI circular.

In issuing the order, Chief Justice Dilip B Bhosle and Justice Suneet Kumar relied on the findings of the 37th report of the Standing Committee on Energy on the stressed assets in the power sector presented to the Lok Sabha on March 7, 2018.

This report pointed out that power plants of thousands of MW capacity are “under severe financial stress” and are “on the brink of becoming NPA” due to fuel shortage, sub-optimal loading, untied capacities, absence of FSA (Fuel Supply Agreement) and lack of PPA (Power Purchase Agreement) among other reasons.

According to the report, “simply applying the RBI guidelines mechanically by the banks, financial institutions, joint lender forums will push these plants further into trouble without any hope of recovery.”

According to the Standing Committee on Energy, there are 40,000 MW of stressed power projects across 34 projects with an outstanding debt of ₹1.8 lakh crore. Of these, 17 projects are affected because of coal linkage.

Reacting to the court order, Harry Dhaul, Director-General, IPPAI, told BusinessLine, “Finally someone is willing to listen to the fact that you cannot treat everyone with the same medicine. The power sector works differently from other sectors, it is very much dependant on the government and on the authenticity of contracts, and these are all very long-term infrastructure investments. This is a highly regulated sector, so you cannot treat it the same way you treat a plastic manufacturing unit or a cement plant.”

According to CRISIL, the outlook for India’s thermal power sector remains largely negative due to continued absence of long-term PPAs for private sector capacity. Of the 75,000 MW of total installed private sector coal-based capacity, nearly 20,000 MW is estimated to be without any long-term PPA.

Union Bank of India MD and CEO Rajkiran Rai G said that the court order could help revive some of the projects. “The thermal power sector needs some more time for correcting (the stress the assets are facing) by way of some restructuring. Ultimately these are good assets, which have to be saved. Most of these accounts will go to the National Company Law Tribunal in September if they are not resolved by then and there is no buyer for these assets.”

 

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