• Insolvency norms: Power firms ask for special dispensation

    •    Source: FE Bureau, The Financial Express / New Delhi, 19th March 2018 Published on : 19th March 2018

      The Association of Power Producers (APP) asked the Reserve Bank of India (RBI) for special relaxation for the power sector in its guidelines on when insolvency proceedings would be triggered.

      The industry body said the stress in the sector is largely due to irregularity in payment from discoms, regulatory delays, and coal supply constraints, which are beyond the control of power companies.

      In a letter written to RBI governor Urjit Patel, the APP said discoms delay regular payments by three-four months, and currently receivables to IPPs stand at about Rs 8,300 crore. Additionally, Rs 7,800 crore is stuck due to various delays in receiving orders from regulators. The IPPs are not compensated for the extra money they have to shell out to buy coal at higher prices due to insufficient supply (only 60% of requirement) by Coal India.

      The RBI recently said even a one-day default in debt servicing for accounts with exposure of more than Rs 2,000 crore would warrant formulation and implementation of a resolution plan. If failed, within three months, the cases will have to go to the NCLT for insolvency and bankruptcy proceedings.

      Last week, power minister RK Singh assured power industry representatives that he would speak to the RBI and the finance ministry about the new guidelines, and his ministry would formulate a methodology to promptly compensate the industry for any development which comes under the ‘change in law’ category.

      The APP claims that the three infrastructure sectors – energy, telecom and steel – face different kinds of issues, and thus call for specific solutions according to problems. According to Ashok Khurana, director general of APP, “The system has to be tolerant for genuine difficulties, while coming down heavily on mismanagement and fraud.”

      Recently, a report by the parliamentary committee on energy (which was invoked in the letter to the RBI) had called for a more pragmatic approach by lenders to private power producers, rather than applying RBI guidelines “mechanically”. Stressed assets in the power sector consist of 34 private power plants with an outstanding debt of Rs 1.74 lakh crore.

      Though government-owned power generators are paid first, according to a report recently presented to the Lok Sabha by the standing committee on energy, dues of state-owned power supply utilities outstanding for more than 60-days payable to central government-owned power companies stood at `10,712 crore at the end of December 2017. Of this, pending amount to NTPC was Rs 1,756 crore.

  • Power plants crisis: Let Gujarat supply coal to troubled states three units, says SBI

    •    Source: Anupam Chatterji, The Financial Express / New Delhi, 19th March 2018 Published on : 19th March 2018

      State Bank of India (SBI) has come out with a set of workable solutions to salvage three imported fuel-based power plants in Gujarat — the Mundra units of Tatas and Adani and Essar Power’s Salaya unit — that are in trouble after the Supreme Court struck down regulator-granted compensatory tariffs.

      At a recent brainstorming session in Ahmedabad, SBI, the lead lender for all three units, has proposed the state government buy imported coal and supply to the plants while only paying the generators the fixed cost — 40% of the tariff. While the state government requested for some time to assess the suggestion and its potential impact on the state’s finances, the viability of “tariff correction” under a bilateral agreement between the generators and state-run discom GUVNL, the committed long-term buyer of electricity from these plants, is also being explored, sources privy to the matter told FE.

      Earlier, the state government had mulled over a plan to take over majority stakes in these three plants for a nominal price of `1 each, as suggested by the companies; but that plan has since been put on the back-burner.

      The three power plants, in which Rs 60,000 crore capital investments have been made, are under the theat of becoming of non-performing assets; Adani Power Mundra unit’s outstanding debt stood at Rs 28,750 crore in June 2017 while Tata’s unit had a debt of around Rs 15,000 crore at that time. Essar’s Salaya unit has an outstanding debt of around Rs 6,500 crore at present.

      In an April 2017 ruling, the SC rejected the claims to compensatory tariffs of Adani Power and Tata Power on their Mundra units on account of an increase in Indonesian coal prices. Neither “change in law” or force majeure, provisions in the power purchase agreements, could be invoked for such increase in fuel costs, the court stated. The increase in fuel costs have pushed the power plants into losses; capacity utilisation at Adani and Essar plants are quite low at present.

      According to sources, raising the tariff on mutually agreed terms between the generating companies and the discom might not be a contravention of the SC verdict. The generating companies had earlier sought for `0.4-0.5/unit hike in tariffs to run the power stations, which would still keep the prices of electricity attractive to the discom, given the low rates (in the range of Rs 2.26-2.89/unit) at which the PPAs were signed. Average power purchase price in Gujarat is Rs 3.44/unit.

      Facing supply shortage, GUVNL has recently started buying more power from the spot markets, where the average electricity prices in March have shot up to more than Rs 4/unit.

      In fact, on March 16, the average price of power in the Indian Energy Exchange was as high as Rs 4.95/unit, when the state procured more than 36 million units of electricity. The landed cost of spot market power to GUVNL came to a prohibitive `8/unit on that day. The supply constraints due to the shutting of the two plants have triggered Gujarat seeking tenders for 2,000 MW of short-term power for April, May and June.

      In February, generation from Adani Power’s 4,620 MW Mundra plant was 680 MU, down 75% from a year ago. Even Essar Power’s imported coal-based station did not generate any electricity at all. However, at 2,615 MU, Tata Power’s 4,000 MW power plant’s production remained at par with February 2017 levels. According to Jefferies India, Tata’s Mundra power plant saw an under-recovery of Re 0.79/unit in Q3FY18 due to higher coal prices. Its management has discussed using lower grade coal options (up to 15-20% in volume) for blending to contain costs and run the plant efficiently.

  • TNERC rejects plea on surcharges

    •    Source: Sanjay Vijayakumar, The Hindu / Chennai, 19th March 2018 Published on : 19th March 2018

      The Tamil Nadu Electricity Regulatory Commission (TNERC) has rejected a plea by open access consumers (industrial users and commercial buildings) to retrospectively extend the benefits of lower cross-subsidy surcharges.

      The concept of open access allows large users of power (typically those who draw one megawatt and more from the grid) to buy cheaper power directly from the private generators rather than depending on the State utility. The move was aimed at increasing the competitiveness and efficiency in the power sector. The loss of revenue to the State utility was made good through the levy of a cross-subsidy surcharge.

      In August 2017, the TNERC had cut the cross-subsidy surcharges to the tune of Rs. 1.6-Rs. 2.5 a unit, in line with the National Tariff Policy 2016, which stipulated that such levies be capped at 20% of the tariff. So far, Tamil Nadu had one of the highest cross-subsidy surcharges ranging between Rs. 3.38 and Rs. 3.50 a unit.

      The Open Access Users Association, a national body representing the interests of open access consumers, two other private power producers — Ski Carbon Black (India) Pvt. Ltd. and Palladam Hitech Weaving Park — had filed separate petitions with the State regulator, seeking the benefits of lower cross subsidy charges for the year 2016-17 in line with the National Tariff Policy of 2016.

      No stipulation

      The TNERC said the orders issued by it generally take effect prospectively and not retrospectively. The tariff orders issued by the Commission normally take effect from the date on which it was issued and not before , it added.

      The regulator noted that there was no stipulation in its open access regulations that the provisions in the National Tariff Policy 2016 should be given effect from the date of its notification. Even the tariff policy had no provision to the effect that the same was strictly implemented from the date of its publication, it added.


  • New NPA rules: Power producers body accuses RBI of overruling House panel

    •    Source: PTI, Live Mint / Mumbai, 19th March 2018 Published on : 19th March 2018

      The Association of Power Producers has accused the RBI of over-ruling the Parliamentary standing panel on power and key ministries with its 12 February circular that ended all the existing loan restructuring mechanisms and voted for insolvency code to resolve stressed assets.

      The association has also sought a special dispensation from the Reserve Bank of India (RBI) saying their defaults are caused mostly by non-payment/delayed payments by state discoms and regulatory delays coupled with poor coal supplies by Coal India.

      The association claims that regulatory delays have resulted in pending payments worth Rs7,800 crore, while pending receivables from state discoms stand at Rs8,300 crore.

      Also state-run Coal India is meeting only around 60% of its committed supplies. In a 12 March letter to the RBI—exactly a month after the 12 February RBI circular extinguishing all the existing bad loan management mechanisms like the 5/25, SDR, S-4A, CDR etc forthwith—the association has requested governor Urjit Patel to intervene and exclude the power sector from the purview of the new NPA resolution rules.

      Indirectly accusing the central bank of over-ruling the House panel on energy and the views of the Union power and coal ministries, association director general Ashok Khurana says, “The issue of stressed assets was discussed in depth with developers, bankers, regulators, and officials of power and coal ministries by the Parliamentary Standing Committee on Energy.

      “After hearing all the stakeholders, they’ve recommended that the revival schemes of the RBI or government should be realistic and not symbolic,” Khurana says in the letter.

      “Every effort should be made to see that the projects with huge investment do not become NPAs for want of marginal financial infusion or adjustment in the way of making working capital available for passing on the interest variable to the stressed asset,” the letter further says quoting the House panel report.

      The letter also notes that already there are over 75,000 MW assets—either under operation or under construction—severely stressed due to various reasons—lower coal availability, lack of long-term/medium-term PPAs, divergence between policy and regulations on pass through of incontestable changes in law (pending regulatory receivables of Rs7,800 crore), huge delays in regulatory orders, and pending receivables from discoms with pending bills at Rs8,300 crore.

      The letter lists three main factors for the stress in the private sector power sector. “Three-four months of average delay in payment from discoms has resulted in around Rs8,300 crore of receivables currently.

      “Over two years of delay in receiving orders from regulators to pass on the increase in cost of coal due to various taxes and duties which are to be treated as ‘change in law’ and around Rs7,800 crore are stuck due to this,” the latter says and further notes that as against this, power developers pay in advance for coal, transportation and transmission.

      Stating that ‘a one-jacket-fits-all guidelines’ of RBI will not work, the letter seeks sector-specific guidelines for different infrastructure sectors like energy, telecom, and steel as they have vastly different issues to be resolved. “The system has to be tolerant of genuine difficulties, while coming down heavily on mismanagement and fraud,” the letter said.

      “We request you to issue special dispensation for power sector by relaxing the default clause from one-day delay in debt servicing and classify the asset as NPA only after the completion of 180-day period and submission of resolution plan should be initiated only after the 180-day period.”

      That apart, resolution plan must note the regulatory/ government delays and so should be exempted from counting as defaulting period. Finally for those case already gone to IBC resolution, RBI must allow grandfathering/a 12-18 month grace period so that resolution and standstill benefit may be allowed to be continued till such period.

  • Engie may sell stake in India solar operations

    •    Source: Utpal Bhaskar, Live Mint / New Delhi, 19th March 2018 Published on : 19th March 2018

      French energy firm Engie SA, one of the largest foreign investors in India’s solar space, plans to sell a stake in its Solairedirect unit that has been actively bidding for projects here, said two people aware of the development. Engie plans to set up 2 gigawatt (GW) of capacity in India by 2019 and has an 810 mega watt (MW) solar portfolio.

      “All operational solar projects in India will be transferred to a subsidiary firm in which the equity stakes will be sold,” said one of the two people cited above requesting anonymity. “Engie is trying to raise money through equity divestment in Solairedirect operations,” said the second person, who also didn’t want to be named.

      Solairedirect also participated in the bids for setting up the Bhadla solar park in Rajasthan that saw India’s record low tariff of Rs2.44 per unit. With €66.6 billion in annual revenue, Engie has been trying to expand its presence in India’s clean energy space.

      In response to queries on the proposed stake sale, Malcolm Wrigley, country manager for Engie in India, in an emailed response, said, “Our India solar portfolio is currently owned 100% (by us). Our business model, world-wide, is develop, construct and then long term hold and operate, we intend to continue to grow in India on this model.” There is growing overseas interest in India’s clean energy programme, with the government targeting 175GW of clean energy capacity by 2022.

      “Normally, we like to work with partners having complementary skills and resources to our own; so we may consider partnership options for this portfolio to continue our growth in this market. This is nothing new and no decisions or steps have yet been taken in this regard,” Wrigley added.

      This comes in the backdrop of a joint venture between Engie SA and Dubai-based private equity firm Abraaj Group to build a 1,000MW wind power platform having fallen through, The Economic Times reported on Thursday. The strategy for the JV specifically meant for wind projects was to involve bidding for new contracts and making acquisitions to reach the targeted capacity.

      After selling its Meenakshi Energy coal-fired thermal plant in Andhra Pradesh in November 2016 to India Power Corp. Ltd, a Kanoria family trust entity, Engie (formerly GDF Suez SA) sought to exit all coal-fired projects. It has been actively eyeing the Indian clean energy space.

      Renewable energy is expected to play a prominent role in India’s energy mix, given the government’s support. With India’s wind and solar tariffs at a record low, firms are also trying to raise funds cheaply.


  • PFC, REC, NTPC could form joint venture to bid for stressed assets

    •    Source: Shraya Jai, Business Standards / New Delhi, 19th March 2018 Published on : 19th March 2018

      Two leading public sector lenders in the power business and a state-owned power-generating giant are likely to come together and bid for stressed assets that will go through resolution under the Insolvency and Bankruptcy Code (IBC).

      Power Finance Corporation (PFC), which has a considerable debt exposure to the sector; Rural Electrification Corporation, which lends to development power schemes; and maharatna public sector undertaking (PSU) NTPC are thinking of forming a company that will buy out power projects.

      The proposed venture might have equity participation from other PSUs like NHPC, PowerGrid, and Bharat Heavy Electricals. The companies are hoping to form the venture before the 180-day period set by the RBI for lenders to stressed companies lapses, according to sources.

      Senior executives in PFC said the projects which would come to the National Company Law Tribunal (NCLT) offered a good opportunity. “If we can ensure a fair price for these projects and hold on to them for a year or so, they will be a gold mine in the future as demand is increasing,” said an executive.

      The executives, however, said the idea was in a preliminary stage and they would want more PSUs to join in. It would be finalised after considering the Reserve Bank of India (RBI) guidelines and legal issues.

      The objective of this joint venture (JV) is to take over these projects and operate and execute them till the demand situation improves and sell them later at a better valuation, according to another official.

      PFC, REC, NTPC could form joint venture to bid for stressed assets Senior NTPC officials said the JV was a good idea if there were six-seven companies in it. “If such a JV is successful, we would benefit a lot from it as it offers the opportunity for O&M (operation and maintenance) for the company as well. We will see how the talks go forward,” said an executive, requesting anonymity.

      With assets of more than 80,000 megawatt (Mw), operational or under construction, severely stressed due to various reasons, the chances of their landing in insolvency courts have grown after last month’s RBI circular on the ‘Resolution of Stressed Assets — Revised Framework’.

      It mandated banks to classify even one day’s delay in debt servicing as default. The notification mandates resolution proceedings against stressed accounts to be completed in 180 days. PFC alone would see close to 14,000 Mw of its projects landing in the NCLT because a resolution for these assets is difficult due to several regulatory and legal issues.

      Stressed assets of more than 25,000 Mw in thermal power are on sale outside the IBC. These are not finding buyers. Most promoter companies of the projects — some operational and others still under development — want to exit.

  • In UP, 32 lakh households get electricity, govt meets 87% of years target

    •    Source: TNN, ETEnergyWorld / Lucknow, 19th March 2018 Published on : 19th March 2018

      On the eve of completion of its one year rule in UP, the BJP on Sunday claimed of having met about 87% of the target of electrifying over 37 lakh households in the state in the financial year 2017-18.

      UP energy minister Srikant Sharma said the state government has already electrified nearly 32 lakh households and would meet its target fully by the end of the current financial year. “This achievement has a deeper significance and it sets the path for wider proliferation of electricity access to the UP population,” said Sharma. UP has about 1.5 crore households which need to be electrified.

      Sharma said the energy department is working to get at least 60,000 majras (hamlets) electrified by the end of current financial year. He said the target was almost 155% of what was achieved in the previous Samajwadi Party government.

      The minister said that being a signatory to 24x7 Power For All scheme, the state government is working closely with the Centre to implement various key schemes, including the Saubhagya scheme which was launched by Prime Minister Narendra Modi last year. He said the state government has managed to meet about 10% increase in demand for power and has also strengthened the transmission infrastructure in the state.