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Plea for easier power funding

New Delhi, Jan. 23: Power minister Jyotiraditya Scindia has written a letter to finance minister P. Chidambaram seeking help to relax the lending norms for power companies, burdened with huge debts and unfinished projects.

Scindia, in a letter dated January 17, has sought a further 2-3 years extension of the moratorium on debt repayment and waiver of penal interest for projects operating at low capacity because of coal shortages and delay in commissioning.

“A number of external factors beyond the control of power producers such as an unpredictable coal supply, uncertainty over gas supply and environmental clearances have resulted in cost and time over-runs,” Scindia said.

“Many new plants are unable to adhere to the commercial operation date. In many cases, after the commercial operation date, plants are operating at low plant load factor.”

On December 24, a meeting of power developers, finance and power ministry officials and some bankers was held, officials said. The letter refers to concerns raised at the meeting, which was presided over by Scindia.

A report released last week by Fitch Group’s India Ratings & Research has cautioned that future investments worth Rs 1,75,000 crore run the risk of turning into non-performing assets, if coal and gas supply issues are not resolved.

Coal mining projects to feed new plants have been delayed by the absence of environment clearances, while pricing issues have stopped gas supplies.

The report noted that Coal India Ltd, the state-run monopoly, could guarantee only 65 per cent of supplies contracted by it to power producers.

Assigning a stable to negative outlook to the power sector for 2014-15, the report said output could go up by 5-6.5 per cent, which would be in line with India’s GDP growth (estimated to be 5.6 per cent).

The outlook reflects the pending policy level issues, manifestation of risks undertaken in earlier years, mismatches in coal demand and supply and continued tariff pressures, India Ratings said in a statement.

Scindia claimed that his ministry had taken steps to address these issues but added, “it may be some time before desired results accrue”.

India Ratings hopes generation will increase as the government’s initiatives will improve coal supply, while easy availability of imported coal should help companies to tide themselves over the input crisis.

Power projects usually borrow money in the ratio of 70 per cent debt and 30 per cent equity. Officials argue that failure to resolve glitches, coupled with stricter recovery norms being enforced by lenders, could mean large bad assets hitting the country’s banking sector.

Indian banks’ bad loans have mounted to 4.2 per cent of total lending by the end of September 2013, compared with 2.4 per cent in 2009.

Sources said several promoters were selling their distressed power projects. Potential sellers, desperate to exit projects that they fear cannot fructify in the near future even as their debts pile up, have approached foreign buyers as well as state-run NTPC.

State-run banks have already restructured loans in 2008-09, However, these stand the risk of turning sticky again.

Officials give the example of Dabhol power project’s Rs 8,500-crore loan that was restructured by its PSU lenders in 2009.

However, State Bank chief Arundhuti Bhattacharya told the power secretary in a letter that Dabhol may not be able to meet repayment obligations unless gas supplies could be ensured. Apparently, the 2000mw plant is operating at an unviable 29 per cent plant load factor.

 
 
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