While the Allahabad High Court has reminded the Centre that the latter can, if it wants, lean on RBI to bail out stressed power generating companies, it should refrain from doing so. The government must respect the High Court’s decision to not provide any kind of interim relief to these troubled firms. The companies were seeking more time—the stipulated 180 days ended on August 27—before banks moved the NCLT to initiate insolvency proceedings against them. The case has now moved to the Supreme Court and, hopefully, RBI will not be forced to extend the deadline.
As RBI had rightly pointed out, it is the government—past and present—that is to blame for the mess that private powercos are in today. By favouring the state-owned utilities and allowing them preferential pricing, the government let down the private sector players. In several instances, it promised gas and coal linkages that it failed to deliver. Moreover, state electricity boards (SEB) were allowed the easy way out, of resorting to load-shedding when when they should have signed power purchase agreements (PPAs) with, among others, these financially-stressed power plants. Again, state electricity regulators watched while SEBs ran up huge losses and piled up debts instead of insisting that the higher cost of purchasing power be passed on to consumers.
Had commercial mining of coal been allowed 15 or 20 years ago, power plants today would not have been starved for coal and dependent on Coal India that is unable to meet the demand. And while both captive and commercial mining licences have been issued, neither the Centre nor the states have been able to do enough to ensure the mines get all necessary clearances like the environmental ones. The end result of the poor policies and inaction over the years is that banks are now saddled with close to Rs 2 lakh crore of non-performing assets. Under the circumstances, the government can’t take the high moral ground and claim it is trying to save public money by getting RBI to extend its deadline; what was the government doing all this while and, more important, how will extending the deadline help make these power plants viable and/or get them the clearances or PPAs they need?
The high powered committee—under the Cabinet secretary—tasked with finding solutions in two months time should immediately ask NTPC, which is the biggest beneficiary of the government’s partisan pricing policies, to take over one or two of the stressed plants, especially where it already has coal linkages. Also, it is shocking that NTPC continues to add capacity at a time when there is around 30GW of stranded capacity.
For the rest, there seems to be no other option other than the NCLT route where the highest bidder will win the asset. There are suggestions the government should set up an ARC exclusively for power assets or transfer these to the AMC-ARC being set up under the Sashakt scheme. Either way, the banks will need to take a big haircut since no buyer—and there are hardly any—would be willing to pay even a half-decent price for power plants without PPAs and fuel linkages. The committee, therefore, has to arrange for both fuel and PPAs and, most critically, it must ensure the SEBs become financially viable. As in all NCLT cases, once the equity value is fully written off, and the debt substantially lowered, perhaps some of the plants may even become viable with imported fuel. Also, the new tariff policy should ensure that PSUs like NTPC compete fairly with private sector peers for PPAs. The draft policy favours a preferential treatment for state and central PSUs by sparing them the competitive bidding process; such favouritism must stop.