Power projects in India may come to a grinding halt, warns Hemant Kanori

KOLKATA: Power projects in India may come to a grinding halt unless generation companies are supported with easier access to fuel and restructuring of loans in the wake of coronavirus outbreak and the ensuing lockdown, warned Hemant Kanoria, chairman, Srei Infrastructure Finance Ltd.

“The power sector has been facing an existential issue since the last five years and with COVID-19, it seems to be the proverbial last straw that broke the camel’s back kind of situation,” Kanoria wrote in a letter to the Prime Minister, Narendra Modi.

“The gencos need to be supported with easier access to fuel and restructuring of their loans, or else those projects can come to a halt resulting in job losses and also leading to a rise in the non-performing assets (NPAs) in the banking system,” he added.

In his letter to the PM, Kanoria suggested that the government must implement certain measures to ameliorate the stress in the power sector.

The condition of advance payments for coal at Coal India and freight charged by Indian Railways from power companies should be waived for next 12 months, while the government should also consider relaxing incidence of tax and additional levy on coal and rail transportation.

Kanoria said that coal should be made available to all gencos at lower prices given the lower global energy prices. “Coal should ideally be available round the clock and throughout the year on a ‘pay and take’ basis. The precondition of having a power purchase agreement for coal supply contracts should be done away with,” he said.

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His suggested fixing of coal prices on the basis of a ‘cost plus profit’ model; suspension of payment of indirect taxes and cess (including electricity duty) to improve cash flows; and setting up of a special fund which can evaluate stressed but viable power projects and buy the debt of these companies with subsequent conversion of debt to equity, and a possible built in buy-back obligation for the company at the end of a specified time line.

He suggested that for a stressed power project, the top priority for the financier should be to work out a solution whereby the principal amount lent to the power projects can be protected and the power assets are maintained in a reasonable working condition.

“Banks and borrower should reach a consensus on the sustainable and unsustainable portions of the debt. Thereafter, the borrower should service the sustainable portion of debt and that portion should be declared as a Standard Asset. The unsustainable portion of debt may be converted to 15-20 years Redeemable Preference Shares,” he said.

For the distribution companies, he suggested that, both public and private discoms must be provided with sufficient liquidity urgently so that they can continue to provide electricity to all the consumers during this critical time.

Power Finance Corporation (PFC) should provide term loans of up to 1x the net worth of discoms within the next fortnight. The loan will help the discoms to tide over some of the liquidity problems. The loan should have a tenure of 10 years with a moratorium of two years and should be made available at an interest rate of 7.5% p.a. This loan should be disbursed as soon as possible,” Kanoria said.

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“Banks may be advised to enhance the working capital and term loan limits by 25% from the current credit limits with immediate effect. It will again help the discoms to take care of their liquidity issues due to disruption and delayed payments by the consumers,” he added.


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