On April 2, 2013, Central Electricity Regulatory Commission (‘CERC’), in Petition No: 155/MP/2012 between Adani Power Limited, Ahmedabad Vs Uttar Haryana Bijli Vitaran Nigam Ltd. &Ors., granted a relief of ‘compensatory tariff’ to Adani Power after determining that it was suffering hardship on account of the unforeseen events leading to non-availability of coal linkage and increase in international coal price and held that Adani power ‘needs to be compensated for the intervening period with a compensation package over and above the tariff discovered through the competitive bidding’ in the power purchase agreement.
In granting the relief CERC reasoned that the protection of the consumers’ interest and ensuring adequate return on the investments in the sector are the common threads in the Statutory Scheme under Electricity Act, 2003 and the Statutory Instruments there under like National Electricity Policy etc. The consumers’ interest is protected not only by fixing competitive tariff but it is equally imperative to ensure continuous, uninterrupted and reliable supply of electricity. For the purpose of qualitative supply of electricity, it is necessary that adequate investments are made for creating infrastructure for generation, transmission, distribution and supply of electricity and this is possible only when the investor gets adequate return on the investments made. Therefore, in the final analysis, the recovery of costs of the investors serves the consumers’ interest by attracting investments in the sector by improving quality of supply of electricity to the consumers. Thus, twin objectives of protection of consumers’ interest and recovery of cost of services provided are complementary. All the authorities established under the Act, have to strive towards achieving these.
The situation of Independent power producing companies is getting bad to worse. The situation has been brought about by external factors like policy, administrative hurdles like lack of fuel linkages, problems with environmental clearances, land acquisition etc. and role of promoters in the situation is none. So before it becomes too late, we must be prepared to extend the benefit of all available preventive, ameliorative, remedial measures to them. It may be a mix of measures like temporary compensatory relief granted to Adani Power by Central Electricity Regulatory Commission, Corporate Debt Restructuring by CDR Cell under the aegis of RBI and to boost the recovery process in genuine cases benefit of statutes like Sick Industrial Companies (Special Provisions) Act,1985 (SICA).
The situation is getting graver by the day. RBI supported Corporate Debt Restructuring Cell, a voluntary and informal mechanism to shore up genuine corporates out of troubled financial waters. In its CDR performance data, it has reported that till March 31st 2013, an aggregate debt of 18,470 crore has been approved for financial restructuring for the power sector which is 8.06 percent of the total debt recommended for such restructuring. As per Financial Express as late as December 24, 2012, the representatives of the various public sector banks including the State Bank of India, Punjab National Bank and Oriental Bank of Commerce had knocked at the doors of the Union Finance Minister ‘cautioning that loans of around Rs. 2.3 lakh crore to private-sector power companies are on the verge of turning bad, and had sought the finance ministry’s intervention to salvage the situation.
A cocktail of policy hurdles and delays in clearances ranging from land acquisition troubles to environmental clearances to lack of fuel linkages have produced such a hangover that soon this mild headache may turn into large-scale defaults from private power firms. The trouble is that despite having invested significantly they are far from earning revenues. The other side of the story is that government distribution companiesare unable to pay the power generators and in face of such defaults they find it difficult to service the loans.
In December 2011 the situation of the Textile sector as reported in SME times was that out of 226 listed textile companies in the country over 83% were suffering huge losses and 127 companies had shown net loss for the first half of the year 2011-12. The crisis was described as the the worst in the history and the magnitude of which was stated to be much higher than 2008- 2009 global recession for which the government had announced a bail out package. In fact, over Rs.2 lakh crore had been invested in the textile industry mostly under the Technology Upgradation Fund Scheme during the decade and the industry at that time had a debt of over Rs.1 lakh crore.
But with the fiscal deficit threatening to go out of control, putting adverse pressure on the exchequer and inflation still being a matter of concern, the Finance Ministry and the Reserve Bank of India in January 2012 had “politely turned down” the Textiles Ministry proposal to restructure textiles sector loans worth Rs. 1 lakh crore, mostly from PSU lenders.
But by May 2012 the govt. relented to the demands for restructuring of bank loans, estimated Rs 1.55 lakh crore for the sector and Government agreed that there was a need to support the Textiles industry in this time of crisis. And it was decided that out of total outstanding debt of Rs. Rs 1,55,809 crore, Rs 35,000 crore needed restructuring as there was hit by a sharp fall in cotton yarn prices and poor domestic and global demand and the textile units were facing difficulty in repaying term loans and financing working capital. It was also decided to examine the demand for special provision in NPA norms to avoid asset reclassification and enable working capital eroded to be converted into working capital term loans repayable over a period of 3-5 years.
It cannot be said that the government is not doing enough to help the power sector, in fact, of late, dynamism of Mr. P. Chidambaram has been in the forefront for ameliorating the problems of the economy. To that inspiring effort, CERC has also done its bit in adopting an ameliorative approach. Now I believe it is time to take an even more proactive approach and take such ameliorative steps in line with that of the Textile Sector.
Because the problems of the power generation companies faced by them are not of their own creation rather they are engendered in part due to general economic distress, international factors on the one hand. So in such circumstances it should not be unthinkable to extend the similar benefits as were extended to the Textile Sector.
The options may be BIFR kind of relief to those units which are suffering from porblems like fuel linkages etc. so the benefit of SICA to the genuine cases of financial distress of power generation companies which are suffering due to external factors and which are not of their own creation. Then only the policy focus of govt. on bridging the electricity deficit, an imperative for sustainable, rapid growth would be able to redeem itself.
Besides that benefit like special provision in NPA norms to avoid asset reclassification and enable working capital eroded to be converted into working capital term loans repayable over a period of 3-5 years may also be given.
The beauty of ‘power’ is that it empowers. It lights up the lives of the people and it powers the industries to run. In a nutshell the ill-effects of sickness in in private power producing companies, would result in: cessation production in other industries dependent upon power, loss of employment, loss of revenue to the Central and State Governments and blocking up of investible funds of the banks and financial institutions.
SO in conclusion it can be said that it is imperative to salvage the Sector which will augur well not only for the financial stability of the banking and financial institutions but also for the greater common good. And relief to the Textile Sector -liberal provisioning norms for the sector and debt restructuring in the genuine cases- is a case in point.
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