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Government may favour more time for stressed power companies

New Delhi: The government is likely to recommend that bankruptcy proceedings for stressed power plants should kick in after 360 days of default, giving relief to banks and companies that are struggling to meet the 180-day deadline set by the Reserve Bank of India in its controversial February 12 circular.

The recommendation is expected to be presented to the Allahabad High Court which is hearing petitions against the circular and had asked the government to present its views after consulting all stakeholders.

Separate recommendations are likely to be made for power projects depending on their operational status and resolution plans drawn by the lenders.

Stressed operational projects and those under execution may be recommended for an extra 180 days over and above the 180-day deadline expiring August 27. Special dispensation has been sought for projects resolved through Coal India supplies (Shakti scheme) and those already in NCLT. A high-level committee to address cross-sectoral issues including delayed payment of private power companies is also being mulled.

A final report after consulting all stakeholders is likely to be prepared by the end of this month. The central government needs to submit its recommendations to Allahabad High Court on August 2.

The Allahabad High Court in its last hearing on July 18 had asked the finance ministry to submit the government's stand on the controversial RBI circular in two weeks.

The power ministry and private power firms have demanded that stressed power projects should not be categorised as stressed in 90 days of default, while the deadline of 180 days to resolve a bad loan, after which liquidation process is immediately triggered, be extended to 270 days.

As per the revised RBI framework for stressed assets, projects with interest or principal overdue — starting from 1day to 30 days — have been categorised as ‘special mention accounts category -0’ (SMO-0).

The most stringent change is that all lenders have to agree upon a resolution that has to be reached in 180 days.

In the last hearing, Additional Solicitor General of India SP Singh, who appeared for the central government, had informed the court that a report has been sent by the finance ministry to the power ministry and the final stand of the government is under deliberation. He had asked for 15days from the court to submit the report.

The high court had on May 31temporarily stayed the RBI circular on companies other than wilful defaulters and asked the finance secretary to hold a meeting on resolutions. The court had also clubbed three separate petitions filed by the Association of Power Producers (APP), Independent Power Producers Association of India (IPPAI) and Jaypee Associates against the RBI circular.

Association of Power Producers (APP) sought modification in the RBI circular issued in February, saying it incentivises banks to consider the change in ownership of a company instead of considering restructuring of the loan, and will trigger liquidation of 30,000 megawatts of assets, causing huge value erosion.

Power producers say that many projects are stressed for reasons, not in their control. These include delays in land acquisition, green clearances, failure of Coal India to supply fuel and reluctance of state distribution companies to sign power purchase agreements. The association demanded the reinstatement of the provisions relating to upgrade of stressed assets after loan restructuring.