Banks Refuse Lending to Private Power Companies' for Parts Upgrade

Banks have refused fresh lending to private power plants for upgradation of equipment to abide by mandatory emission norms, threatening the closure of 60 GW of operational and near operation assets, starting December this year 
Private power firms have sought the Centre’s intervention to get about Rs 1,80,000-crore financial assistance for installation of emission control equipment from sectoral financiers such as Power Finance Corp (PFC) and Rural Electrification Corp (REC), following refusal by banks. The companies are already behind schedule for placing equipment orders to meet the phased deadlines beginning this year-end. Power plants that fail to comply with emission norms as per timelines agreed in the Supreme Court will face closure. 
As per the implementation plan prepared by the Central Electricity Authority (CEA), the existing thermal power plants are required to comply with the new emission standards between December 2018 till 2022. Lenders are reluctant to provide additional financing of about Rs 300 crore for every 1000 MW for installation of emission control equipment because of the prevalent stress in the sector, overexposure to the power sector, ongoing bad debt corrective schemes and past experience with denial of pay-out in case of change in law by discoms, Association of Power Producers director general Ashok Khurana said. 
Power ministry officials were not available for comment. A government official, however, on condition of anonymity said banks’ concerns were based on lack of power purchase agreements and rising renewable energy generation. Arecent standing parliamentary committee report shows total outstanding loans of scheduled commercial banks to the power sector is at Rs 5.65 lakh crore and a fifth of this is stressed on various counts. 
Private power companies are fighting a legal battle against the Reserve Bank of India’s February 12 circular that mandates banks to start resolution proceedings within a day of default and complete the process in 180 days. If the Allahabad High Court does not extend the 180-days deadline, bankruptcy proceedings are likely to be initiated against 30 GW power plants. The court is set to hear the case on Monday, while the 180-day deadline expires on August 27. 
Khurana said in a response to a letter by APP on the funding issue that Indian Banks’ Association has expressed its inability to meet the required funding and opined that the ideal recourse in the present circumstances would be either in the form of equity, or soft loan by the ministries of environment and power. APP has taken up the matter with the Department of Financial Services“ The timelines will result in shut down of generation plants across India — leading to a power availability crisis. 
“Closure of these well-running plants due to non-compliance, on account of financial constraints, would dry up the power plants’ cash flow and consequently would lead to default in their debt obligations. This scenario, in all likelihood, would lead to a new wave of NPAs in the power sector,” Khurana said. The government had on May 30 issued an advisory stating that compliance with the new environment norms pertains change in law, which means the developers can pass through the incurred tariffs. 


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