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Independent power producers have sought the government’s intervention to ease an RBI directive to banks to start the resolution process even after one day of default on loan payments in a bid to save assets of 40,000-MW capacity from slipping into insolvency.
The IPPs put forth this demand during a meeting with the Financial Services Secretary, Rajiv Kumar, in New Delhi on Thursday, at least three people briefed on the meeting said, asking not to be named.
The meeting of the sector stakeholders was called by the Finance Ministry following an order of the Allahabad High Court that had earlier asked the government authorities to find a solution for the stress facing the power sector.
The meeting was attended by independent power producers (IPPs), representatives of Power, Coal and Railway Ministries, the Reserve Bank of India (RBI) as well as of public sector lenders, REC and PFC, the sourced added.
Structural issues
During the meeting, according to one of the sources cited above, government officials acknowledged that the sector is facing a range of structural issues from the financial stress of distribution companies (Discoms) to challenges of coal availability, especially the new projects.
Given that the challenges are “out of hands” of private players, they’ve requested the government to revise the RBI’s February 12 circular, which directed banks to begin the resolution process if a company delays repayment by one day.
“The meeting provided an opportunity to the Association of Power Producers (APP) to explain the heavily-regulated nature of the power sector. The relaxations will provide a window for chalking out a time-bound action plan for regulatory and policy required to salvage a significant portion of the power portfolio,” Ashok Khurana, Director-General of APP, told BusinessLine . He added that the power producers are looking for flexibility in the RBI’s circular in view of the ground realities.
The Finance Secretary has asked stakeholders to submit their views in writing by Monday, after which the next course of action will be decided, another person who participated in the meeting said.
AMC for power
The proposition of Rural Electrification Corporation (REC) to set up an asset management company (AMC) that will warehouse stressed power projects of the cumulative capacity of 45 000 MW was also discussed at the meeting, one of the persons cited above said.
Earlier this month, speaking with reporters in Mumbai PV Ramesh, Chairman and CEO of REC, said the finance company was working with other lenders on a model whereby stressed assets could be warehoused and managed until demand picks up.
Private players and experts, however, believe that changing ownership of stressed assets may not lead to resolution of stress unless the underlying issues are resolved.
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