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Resolved power assets can’t service debt as Covid-19 pandemic has reduced demand


New Delhi: Stressed power assets resolved in the last 18 months are unable to generate adequate cash as the pandemic has reduced demand and made debt-servicing difficult, leaving lenders worried about resolution of more such projects with an outstanding debt of Rs 90,000 crore.

The turnaround time of these projects has increased because of the pandemic, raising concerns on fresh investments in the sector amid global focus on renewable energy, sources said.

Lenders and government interventions have been able to resolve 14 of the 34 identified stressed plants in the last one and half years. However, at least a dozen more coal-based projects with about 17,000 MW capacity are under various stages of resolution.

While the total outstanding debt of the 34 stressed power plants is to the tune of Rs 1.9 lakh crore, the debt of these 17,000 MW projects is about Rs 90,000 crore. The debt exposure of the projects that have been resolved is approximately Rs 70,000 crore.

A recent evaluation of stressed assets in power sector showed that most resolved projects are facing problems in debt servicing due to inadequate cash generation from operations.

“EBITDA (earnings before interest, tax, depreciation and amortization) of many of the resolved projects continues to be low and they may not be able to meet their debt obligations,” one of the lenders told ET on condition of anonymity. “Lack of long-term power purchase agreements, drop in electricity demand pre and post Covid, lack of coal supply arrangements are some of the factors responsible for the low earnings. We are concerned about resolution of remaining assets as these experiences may further lower investment sentiments.”

Sale attempts of stressed projects like Essar Power Mahan Ltd, Athena Chhattisgarh Power and Jindal India Thermal Power have yielded no results, the sources said.

Another lender said the situation may require policy interventions like continuity of PPAs and existing tariffs. The Uttar Pradesh electricity regulatory commission had earlier sought reduction in tariff from Prayagraj Power Generation Corp plant resolved by State Bank of India-led consortium, saying selling power sector assets by banks at lesser valuation without tariff adjustment will create a “perverse incentive” for buying these assets and create undue “arbitrage”. The demand was set aside by Appellate Tribunal for Electricity.

Association of Power Producers director general Ashok Khurana said turnaround time of stressed projects is contingent upon resolution of underlying systemic stress factor—adequate fuel availability and power off-take arrangements. “With the increase in coal availability, it is time to de-couple coal linkage and PPAs, to enable these stranded assets to generate power and sell in market or DEEP portal, to generate some cash flow to meet interest payment liabilities,” he said.

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