INSUBCONTINENT EXCLUSIVE:
When Ultra Mega Power Projects were the flavour of the season a decade ago, one key company was missing in action
Everyone is confident that once they get the project they could change the terms of contract and make a lot of money
the UMPPs but across the board
that about 40,000 megawatts of capacity may be under stress
About 12,000 megawatts may be resolved under a special scheme, and 20,000 megawatts may head to NCLT
While RBI mandates 50per cent provision for potential losses for all companies in bankruptcy, Edelweiss Securities estimates losses could be
more.
The RBI on February 12 gave 180 days to fix the defaults, failing which the National Company Law Tribunal process would kick in
They sought judicial intervention, saying they are heavily regulated
What major regulation changed that made them unviable
In fact, the only avenue open to defaulters now is the NCLT, which is a giant leap in cleansing the banking mess.
Putting up a power plant
was an easy road to riches, once
It costs a lot of money to come up with a power plant unlike a department store, but once done, it is like a slot machine that spews out
money for a generation or more without much effort.
Since it is a regulated industry, the ability to manage the system counted more than the
skills of managing a project
Once a PPA is signed by influencing the administration, the state would pay for 20 or 30 years irrespective of whether the state consumed
the electricity or not.
Then comes the investment by the promoter and lending by banks
While there was equity from the promoter, it was always short of need.
What is common knowledge among bankers, bureaucrats and the regulator
Wherever procurement was done through group firms, funds leaked
These two made the cost of production so high that consumers were unwilling to pay.
One question that begs an answer is if these projects
At least 19,000 megawatts of power projects are without PPAs, estimates Edelweiss
About 8,000 megawatts under construction are unlikely to find any takers.
The dynamics of the power market have also changed
States saddled with huge debt no longer want to commit buying high-priced electricity for years
With the market becoming transparent and power being available cheap and for shorter duration, it made sense to buy on exchanges
If banks are averse to lending long-term at a fixed rate, why would a state distribution company buy power at fixed rate for 20 years.
In
fact, many are reneging on PPAs since it is economical to buy power from the market
Why would a state offer 16per cent return to a power producer for 25 years whether it consumed the power or not
a unit, data from the Indian Energy Exchange show
For many of the distressed projects to be viable, power has to be sold above .5 or .6 a unit, thanks to the high project costs.
Which state
distribution company would buy when it has the flexibility to buy at half the price depending on its need and ability
The only option available is for the banks to take losses of even 70per cent and partner who can bring in genuine equity.
Whether one likes
it or not, the best place to find the right price and execute a transaction is the marketplace
For these firms, the best market is NCLT.
