Banking consortia are delaying lending decisions for stranded power projects that are close to completion, pushing investment of nearly `2 lakh crore towards becoming non-performing assets (NPAs), industry executives say.
At stake are plants with total capacity of 25,000 MW, with nearly complete coal-based projects being the most vulnerable.Gas-fired plants stranded by fuel scarcity have gained from government’s auction of imported gas, the latest beneficiaries being nine fir ms including Ratnagiri, GVK Power and Lanco Infratech, which emerged winners in the fourth phase of auction on Saturday .
Bankers say normal lending cannot resume unless various issues are resolved in the sector, which first saw a rush of investment, but was hit by fuel scarcity, policy drift in the previous regime, absence of power purchase pacts and cancellation of coal mines by the Supreme Court. Banks are reluctant to fund infrastructure, particularly the heavily-indebted power sector, as bad loans have eaten into their profits.
Power companies complain that many projects that can become profitable are suffering because banks are ambivalent in their response, causing costly delays. “They neither say `yes’ nor `no’. They merely delay,” said an industry insider. He said that at times individual banks block decisions are taken by majority lenders in a consortium.
Power producers have taken up the matter with RBI. “It is observed that in many cases, certain banksdo not implement decisions taken by majority of the lenders in the consortium and put additional conditions. This often leads to long delays, which impacts the infrastructure project … Once a decision has been taken in JLFconsortium meeting, all lenders and other nonbank institutions should be made to comply with majority decision,” power producers said in a letter to the RBI.
Association of Power Producers, which recently took up the matter, has sought the intervention of RBI in improving the financial condition of stressed power sector projects. “These issues are beyond the control of the developer and are driving the affected projects towards being classified as NPAs. With support from RBI, these can be turned around into profitable assets,” the industry body told RBI.
Bankers say they have many concerns. “The power sector has faced peculiar issues with regards to purchase agreements, coal linkages and environmental clearances.Lending to this sector or projects in the sector cannot be resumed unless these issues are resolved,” said KVS Manian, head-corporate, investment banking at Kotak Mahindra Bank.
“If developers can resolve these issues then banks will be more than happy to lend more money to these projects,” he said.
Industry executives say that on paper, mechanisms for debt restructuring via consortium lending exist, but there are fatal delays inherent in the process. “The message from the government to banks is that you cannot unduly delay these things. If it is not timely, it doesn’t matter if they sanction it or not. They do it after 6-8 months by that time the damage is already done,” a power sector executive said.
“Once the lead lender has taken a decision and the Joint Lenders’ Forum has agreed and the lead lender has given his sanction, the rest of the banks have to be time bound,” he said.”There are projects which might need about one and a half years to complete but due to these delays, for six months you are sitting and doing nothing.”
Sushil Maroo, executive vice-chairman of Essar Power, spoke of regulatory and policy deficiencies.
“Banks and FIs are reluctant to finance power projects, which have been affected by coal block de-allocations and delay in statutory approvals.” Star Lotulelei Authentic JerseyShare This