The central government is all set to rescue 34 loss-making power plants include 32 thermal plants owned by the private companies and two of the public sector. The situation has deteriorated to the extend that these private thermal plants with the commissioned capacity of 24,405 MW, are owing an outstanding debt of Rs 1.8 lakh crore and on the verge of being classified as NPAs. With a view to help their industrialists friends, the centre government and leading bankers are working hard to come up with a bailout plan them so that the corporate houses do not have to face insolvency as per Reserve Bank Of India(RBI) revised framework for the resolution of stressed assets. The government should not bail out private power generators and instead ensure round the clock power supply for people residing in rural as well in Urban areas.

Media reports suggest that the empowered committee headed by cabinet secretary to P K Sinha will meet first time tomorrow to discuss the issue.

If we go by the records, the major defaulters are Adani Group with outstanding debt of Rs 11,765 crore on its Tirora project in Maharashtra , Jaypee Group with Rs 11,493.5 crore on account of its Bara power plant in Uttar Pradesh, Rs 6,211 crore on its Nigrie plant and Rs 2,253.85 crore on its Bina project in Madhya Pradesh. The Lanco Group has debt of Rs 8,782 crore on its Amarkantak power plant in Madhya Pradesh, Rs 6,976 crore on its Babandh project in Odisha, Rs 4,762 crore on its Vidarbha project in Maharashtra and Rs 3,071 crore on its Anpara project in Uttar Pradesh.

In addition to it, the GMR Group owing the banks Rs 2,905 crore on the Warora project in Maharashtra, Rs 8,173.9 crore on the Raikheda project in Chhattisgarh and Rs 4,100 crore on the Kamalanga project in Odisha. The KSK Power Group’s Mahanadi power project at Akaltara in Chhattisgarh alone has an outstanding debt of Rs 17,194 crore.

Parliamentary standing committee on energy in its report tabled in Parliament, the noted that as on June 2017, the power sector had nearly Rs 6 lakh crore of total loans. Of this, Rs 37,941 crore are non-performing assets, while restructured advances amounted to Rs 60,858 crore.

The Parliament Standing Committee on Energy mentions that there is no single reason which can be assigned as a cause for making all these power plants stressed. The major issues identified by the standing committee are Inability of the promoter to infuse the equity & working capital, non-availability of regular fuel supply arrangements, lack of power purchase agreement (PPA) and contractual issues.

In addition to it, as per report coal linkage is available only for 11,050 MW of capacity out of the total 40, 130 MW stressed capacity and for the rest either coal blocks had been allotted or under the process of allotment and for 7,725 MW linkage is still required.

This meant that any company could set up a thermal power plant without requiring obtaining a license first as long as it complies with the technical standards relating to grid connectivity. Except for fuel linkage the other reasons for the stressed assets are managerial in nature.

In the liberalized regime introduced by amendments to the Electricity Act in 2003, the Centre and the States went berserk in clearing a very large number of coal-based thermal power projects proposed by private companies. There is no regulation of additions to generation capacity.

Central Electricity Authority (CEA) used to exercise due diligence in regulating additions to thermal capacity so as to minimize the backing down of thermal plants. The liberalised regime of 2003 discontinued such a regulatory oversight, opening the floodgates to the proliferation of private thermal generation capacity across the States.

With political support, every industrial house in India jumped into the fray of developing this very capital-intensive industry without capital and or technical knowledge. Capital could be obtained from the banks without much scrutiny. The result is that today investment in the power sector has become stressed assets.

Keeping with the overall pro-privatisation policies, the banks were encouraged to lend money to these private companies for setting up power plants often without even making sure that the pre-conditions were met. State Discom was forced by the political leadership to sign PPAs for a period of 25 years with a ‘deemed generation’ clause implying that the Discom will have to pay the private generator during the lean periods even if electricity is not required by the Discom.

Now under the new rules, the RBI ordered that lenders to companies defaulting on loans of Rs 2,000 crore or above as on March 1, 2018, will have to implement a Resolution Plan within 180 days, or file for insolvency under the Insolvency and Bankruptcy Code (IBC) within 15 days from the expiry of the deadline.

Using their political muscle these industrial houses have managed to stall the RBI moves to enforce financial discipline on both the banks and the borrowers by having a most powerful committee headed by the Cabinet Secretary to suggest bailout plan. There are serious governance issues that need to be underlined and now bailout package for private power generators is not required at all. The move may deal a blow to the sanctity of the insolvency and bankruptcy code.