New Delhi: The Supreme Court may have allowed India’s central electricity regulator to consider reopening the power supply contracts of the loss-making generating stations of Tata, Adani and Essar in Gujarat, but it does not mean that the matter of compensatory tariff for these plants has been settled. Far from it.

Consumer forums can still continue their legal battle all the way up to the apex court to challenge grant of compensatory tariff for these plants, which would entail additional burden of Rs 1.29 lakh crore on consumers over a 30-year period.

“We make it clear that our judgment will not stand in the way of maintaining such applications. We also make it clear that each of the consumer groups, who had appeared before us and who have appeared before us today, will be heard on all objections that they may make to the proposed amendments to the power purchase agreements (PPAs), after which, it will be open to the Central Electricity Regulatory Commission (CERC) to decide the matter in accordance with law,” said Justice Rohinton Fali Nariman in his October 29 order while disposing of Gujarat government’s petition.

“Given the conclusions in the high power committee report, we are of the view that the CERC should decide this matter as expeditiously as possible, and definitely within a period of eight weeks from today,” the order added.

According to experts The Wire spoke to, it is clear from the SC order that options are open for consumer bodies to challenge grant of compensatory tariff for these plants in the CERC and the Appellate Tribunal for Electricity and finally in the SC.

That means the matter is unlikely to be settled anytime before general elections, which are due by April.

Banking sources said some of these plants have already missed loan repayment schedules. Loans to Essar’s plant have even turned non-performing asset (NPA), sources added.

Also read: If Gujarat Power Plants Bailout Is Approved, Consumers and Lenders Will Pick up the Tab

Now the question arises, how long can these plants can avoid being dragged to the bankruptcy court?

The Supreme Court is also currently hearing petitions from power producers challenging validity of the Reserve Bank of India’s (RBI) February 12 circular, which stipulates default even if there is just one day’s delay in payment of interest or principal.

All those who have defaulted on loans of over Rs 2,000 crore were given six months’ time to regularise their accounts or get ready to be dragged to the national company law tribunal (NCLT).

The deadline ended on August 27. Defaulters, however, have got a breather until November 14, which is when the next Supreme Court hearing is due.

If the apex court declines to further extend the stay on the RBI’s new guidelines for identification and resolution of defaulted loan accounts, lenders will have no option but to initiate insolvency proceedings against these plants immediately.

Tata power plant in Mundra. Credit: PTI

Lenders have argued for reopening existing PPAs to allow these plants to pass on increased fuel costs to consumers as they fear they could lose over Rs 30,000 crore that they have lent to these plants. For the recovery of loans, they have even agreed to take haircuts of Rs 17,000 crore.

But if the apex court declines to maintain stay on the RBI circular beyond November 14, lenders will have to drag these plants to the bankruptcy court. They cannot wait for a final resolution of the compensatory tariff dispute.

The apex court has transferred to itself all petitions filed by industry bodies in various high courts against the RBI’s circular.

These cases have been filed by Independent Power Producers Association of India, Association of Power Producers, Shipyards Association of India, Dharani Sugars and Chemicals Ltd and the South Indian Sugar Mills Association.

“Status quo, as of today, shall be maintained,” ordered the bench of Justices Nariman and Indu Malhotra while hearing the matter on September 11.

Section 7 wrinkle via Allahabad

Earlier, the Allahabad high court too declined to stay implementation of the RBI circular.

However, it threw in an extra wrinkle by asking the Centre to look at directing the RBI to dilute its guidelines for the power sector by invoking Section 7 of the RBI Act.

It has been reported that one of the letters that was sent to the RBI under Section 7 was to start consultations into reclassifying power NPAs although it’s unclear how this will proceed in the coming days and how it will reconcile with a potentially unfavourable apex court decision.

As many as 60 corporate loan defaulters and 34 power companies – including GMR Chhattisgarh, Ind-Barath Energy (Utkal), Lanco Anpara and Jindal India Thermal Power – and non-power sector players such as Bombay Rayon, Gitanjali Gems, Gayatri Projects, Patel Engineering, Gammon India, GTL Infrastructure, Punj Lloyd, Reliance Defence & Engineering, Bajaj Hindusthan, Pratibha Industries and McNally Bharat Engineering Co are on lenders’ hit list.

These companies together owe about Rs 3 lakh crore to banks and financial institutions. Of this, Rs 1.75 lakh crore is owed by stressed power projects.

The RBI circular has laid down strict timelines for banks to initiate insolvency proceedings. The loan account becomes NPA if payment gets delayed by 90 days. Following that, lenders have 180 days’ time to implement a resolution plan. Failing that, they must initiate insolvency proceedings for the recovery of loans.

A recent CRISIL ratings report noted that a “successful resolution” of NPAs worth Rs 1 lakh crore in coal-based power projects is possible with a 40-60% haircut.