Stressed projects could be ‘warehoused’ post SC order

By Subhash Narayan

New Delhi, April 2 (IANS) The government plans to revive its policy to "warehouse" stressed power assets and bring them back to health gradually after banks got freedom to pursue resolution for these assets following a Supreme Court order declaring the February 12 RBI circular ultra vires.

Under this plan, stressed power projects would be nursed back to health through equity support from banks and power sector lending agencies and operational support from an asset management company or power generating entity like NTPC.

The "warehousing model" has been deliberated between the Ministries of Finance and Power for around 40,000 MW of stressed projects. The total outstanding debt in these projects is around Rs 1.8 lakh crore.

The new model aims to protect the interests of banks, non-banking finance companies, the government, the promoters and the public by reviving projects that otherwise face the prospect of turning into non-performing assets (NPAs), resulting in further investment squeeze in the power sector.

Warehousing would take off by creating a special purpose vehicle (SPV) involving state-owned funding and operating entities such as the Rural Electricity Corporation (REC), the Power Finance Corporation (PFC), the State Bank of India (SBI) and the National Thermal Power Corporation Limited (NTPC).

The entities would put funds into the SPV and raise further finances from the market to provide equity support to the stressed projects.

The NTPC may be given additional task to operate the stressed power plant till the time it revives.

Post a turnaround, the SPV could decide either to sell the asset to a new owner or transfer it back to existing promoters to ensure that banks get back their regular share of dues.

"It is still unclear whether this model would be revived but this would be ideal for the sector. Moreover, it would also require approval of Reserve Bank of India," said a government official privy to the development.

He added that the plan will also have to be seen in the light of forthcoming elections and the Election Commission's model code of conduct.

Sources said that one of the preconditions in the warehousing model could be a change in the management of the asset in stress till the time the revenues start servicing the debt or a market is found.

The promoter, however, may be retained with minority shareholding in few cases where their presence becomes essential for smooth operations.

The central government has already cleared projects and schemes totalling Rs 31,000 crore to boost investment in the languishing power sector. It also involves a scheme to provide fuel to stressed power projects and also provide them with power purchase agreements (PPAs).

The government is bringing in different plans to address the issue in the power sector. Apart from warehousing, the SBI has framed the new 'Scheme of Asset Management and Debt Change Structure', or Samadhan, which proposes the sale or takeover of the stressed assets to prevent their liquidation.

Under this scheme, the bank have shortlisted 11 projects with a combined capacity of 12,640 MW for restructuring in the first phase. The projects include Lanco Infratech's 1,200 MW Anpara project in Uttar Pradesh, Jaypee Power Ventures' 1,320 MW Nigrie project in Madhya Pradesh, the 2,400 MW KSK Mahanadi plant in Chhattisgarh, Jindal India Thermal Power, Ind-Barath Power and others.

The warehousing model could help close to 14-15 of the 34 stressed power projects identified by the Finance Ministry earlier. The banks are already looking at selling stake in at least 8-10 stressed power plants to strategic investors while putting another 8-10 for resolution under the National Company Law Tribunal.

(Subhash Narayan can be contacted at subhash.n@ians.in)