NEW DELHI: The Reserve Bank of India (RBI) has said that stress in the power sector has been caused by state-run utilities being favoured at the expense of private ones amid an escalating row with the government over the central bank’s February 12 circular that tightens loan default rules.

A government official said the RBI’s response to the Centre’s submissions in the Allahabad High Court was made in a letter to the Department of Financial Services, which had presented a report on stressed power assets to the bench. The banking regulator pointed to the power ministry’s proposal to exempt all central public sector units (CPSUs) from mandatory tariff-based competitive bidding, he said.

In its letter, RBI has referred to the draft tariff policy circulated by the government for public consultation as per which new power plants of CPSUs such as NTPC may not have to compete with private companies.

The latest RBI letter echoes what private power firms have been saying. Private power companies have been holding NTPC responsible for stress in the sector. NTPC had signed 40 GW of power purchase agreements (PPAs) before the mandatory, competitive bidding for power procurement came into force on January 5, 2011. Lack of PPA opportunities by states is cited as one of the key reasons for stress in the sector.

 

The draft policy said: “All future requirement of power should continue to be procured competitively by distribution licencees except in cases of expansion of existing projects or where there is a company owned or controlled by the state government or central government as an identified developer where regulators will need to resort to tariff determination based on norms provided.”

In its submission before the Allahabad High Court on Thursday, RBI declined to extend the deadline for resolution of stressed power assets and said it has to act in a sectoragnostic manner.

Private companies, which are contesting RBI’s circular in the Allahabad High Court, have cited a recent order by the Punjab and Haryana High Court, which has stayed insolvency proceedings against SEL Manufacturing Co. and SEL Textiles.

“The present writ petition raises important question of law and vires of Banking Regulations Act and RBI instructions and circulars therein and, keeping in view interest of workers and the banks, it is directed that corporate insolvency resolution process (CIRP) against respondent companies is kept in abeyance,” the the high court said.

The power and finance ministries have supported private power companies in the Allahabad High Court in seeking an extension to the 180 days stipulated for completing resolution proceedings under the February circular. The government recently set up a high-powered committee to be headed by cabinet secretary PK Sinha to resolve issues related to stressed assets.

Power secretary Ajay Bhalla has called a meeting with the private power companies on August 17 on issues concerning stressed assets ahead of the August 27 deadline as per the RBI circular. The Allahabad High Court is scheduled to next hear the matter on August 14.

In all about a dozen petitions have been filed against the circular on revised norms for stressed assets while a few more are in the works. A shipyard in Gujarat is likely to file a case in Ahmedabad High Court, and some private power firms including RattanIndia have sought to be impleaded in the Allahabad HC case. RattanIndia group, formerly Indiabulls Group, has thermal power plants with installed capacity of 2,700 mw in Maharashtra.

The 40th Standing Committee on Energy last week noted that the outcomes of RBI’s revised framework with respect to the electricity sector have been disappointing with bank non-performing assets (NPAs) rising.

The total outstanding loans of scheduled commercial banks to the power sector(including renewables) stood at Rs 5.65 lakh crore at the end of March. Nearly 80% of this is accounted for by public sector banks and almost a fifth of this exposure is stressed on various counts.

“The committee expresses its deep anguish over the situation and expect that RBI should have considered macro issues of electricity sector before finalizing the guidelines as the revised framework of RBI will not help the electricity sector in its revival prospects,” the committee report said.