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Business News/ Industry / Energy/  Govt sets up key committee on stressed power projects

Govt sets up key committee on stressed power projects

The committee on stressed power projects will be headed by cabinet secretary P.K. Sinha, who was earlier India's power secretary

NPAs in power generation account for 5.9% of the banking sector’s total outstanding advances of ₹4.73 trillion. Photo: Pradeep Gaur/MintPremium
NPAs in power generation account for 5.9% of the banking sector’s total outstanding advances of ₹4.73 trillion. Photo: Pradeep Gaur/Mint

New Delhi: In an attempt to resolve the vexed issue of stressed power projects, the National Democratic Alliance (NDA) government has set up an empowered committee headed by cabinet secretary P.K. Sinha, who was earlier India’s power secretary. This comes in the backdrop of non-performing assets (NPAs) in power generation accounting for around 5.9% of the banking sector’s total outstanding advances of 4.73 trillion, according to the second volume of the Economic Survey 2016-17 released in August.

“The committee would look into the various issues with a view to resolve them and maximise the efficiency of investment including changes required to be made in the fuel allocation policy, regulatory framework, mechanisms to facilitate sale of power, ensure timely payments, payment security mechanism, changes required in the provisioning norms/Insolvency and Bankruptcy Code (IBC), Asset Restructuring Company (ARC) Regulations and any other measures proposed for revival of stressed assets so as to avoid such investments becoming NPA," the government said in a statement on Sunday.

While several measures including the insolvency framework have been put into effect, concerns have been raised that stressed projects have drawn bids for around 1-2 crore per megawatt (MW), a fraction of the 5 crore per MW needed to build them. Power minister Raj Kumar Singh said last month that the government didn’t want assets that are complete and constructed at a cost of 5 crore per MW to be sold off at 1 crore per MW or 2 crore per MW because the people who will buy it at such throwaway prices will make a killing.

Mint reported on 21 June about the government’s plan to warehouse stressed power projects totalling 25,000MW under an asset management firm to protect the value of the assets and prevent their distress sale under the insolvency and bankruptcy code till demand for power picks up. State-run Rural Electrification Corp. Ltd has identified projects with a total debt of around 1.8 trillion as part of the scheme, named Power Asset Revival through Warehousing and Rehabilitation, or ‘Pariwartan’.

“Stressed thermal power assets are a cause of concern for the country. With a view to resolve the stress and revive such assets, the government has decided to set up a high level empowered committee headed by cabinet secretary with representatives from the ministry of railways, ministry of finance, ministry of power, ministry of coal and the lenders having major exposure to the power sector," the statement added.

The NDA government is exploring a series of measures to boost electricity demand in the country. These include setting up a pan-India power distribution company, given that the segment will be key to the long-term fortunes of the power sector. Distribution companies have so far been the weakest link in the electricity value chain. Poor payment records of state-owned electricity distribution companies (discoms) have not only adversely affected power generation companies, but has contributed to stress in the banking sector as well.

“Recently, Ministry has received proposals in regard to setting up of a National Company in Distribution Sector….Setting up of a dedicated Company for Distribution Sector is contingent upon its need assessments," Raj Kumar Singh said in response to a Lok Sabha question on 19 July.

Also, India’s electricity demand is expected to go up with the Centre setting up a December 2018 deadline to provide electricity connections to more than 40 million rural and urban households under the 16,320 crore Saubhagya scheme.

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Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Updated: 30 Jul 2018, 06:36 AM IST
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