Delay in Supreme Court order puts stressed thermal power projects in limbo

The future looks bleak for about Rs 2 trillion worth of thermal power projects facing insolvency.

The delay in the Supreme Court hearing the challenge to the RBI circular by power companies could worsen the debt situation of more than 24 assets that have been unable to find any resolution or buyer.

The power sector had in August contested the February 12 circular of the RBI in the Supreme Court, questioning its legality. 

The court will hear the matter after its vacation, which is from December 17 to January 1. An order is unlikely before February next year. 

The RBI circular had asked lenders to either execute a resolution plan for big stressed accounts or file insolvency petitions against erring companies in the National Company Law Tribunal (NCLT).

On September 11, the Supreme Court transferred all the petitions moved by power, sugar and shipping companies in different courts across the country to itself and stayed the February 12 circular. But any resolution outside the NCLT is allowed.

Power companies such as Essar Power, GMR Energy, KSK Energy and Rattan India Power have filed the petitions. The Association of Power Producers and Independent Power Producers Association of India have moved the Supreme Court, challenging the constitutional validity of the circular.

The apex court is hearing these petitions by dividing them into three categories. There are some companies that have challenged the validity of the Insolvency and Bankruptcy Code. The second group of companies have challenged the constitutional validity of the circular, and the third group, which consists mostly of power companies, have sought temporary relief from the circular only for themselves.

As the legal process grinds slowly, the debt situation of most of the assets would worsen. Of the 34 identified stressed thermal power projects, there are seven that have been declared resolved after they received coal under a Central government scheme. Apart from that, the Jaypee group’s 1,980-Mw Bara (Prayagraj) power project got Resurgent Power, a joint venture company of Tata Power and ICICI Ventures, as buyer. 

Jaypee’s three more projects — Nigrie, Bina, and Vishnuprayag — are undergoing loan restructuring outside the NCLT. Experts expect it to be over in a couple of months. Avantha’s Jhabua Power (1,200 MW) sale deal with Goyal MG Gases has fallen through and the lenders to the project have issued a fresh tender now. 
 

Essar Power’s incomplete Tori thermal power project (1200 MW) in Jharkhand, which is undergoing insolvency proceedings, has unable to draw buyers’ interest. The Insolvency Resolution Professional (IRP) has extended the deadline for submitting resolution plans by interested parties for the sixth time now to December 19, 2018.

There are six more such incomplete projects and will find it difficult to find a buyer. There are 12 under stress owing to lack of power sale agreements. 

 

Meanwhile, the cabinet secretary-led High Level Empowered Committee (HLEC) has come up with a report suggesting ways to resolve stress in the sector. “We hope that the measures suggested by the HLEC are implemented expeditiously, most importantly, facilitating power sale from stressed units,” said A K Khurana, director general, APP.

The HLEC was formed on the directions of the Allahabad Court.

The HLEC had entrusted NTPC to act as an aggregator of procuring power through a transparent competitive bidding process from such stressed power plants. It can then offer the power to discoms against power-purchase agreements of NTPC until its own plants/units are commissioned, said the report.