Led by State Bank of IndiaBSE 0.10 %, lenders will invoke pledged shares to take control of Essar Power Gujarat, an arm of Ruias-promoted Essar Group.
The decision to acquire 51% equity interest has been taken weeks before a slice of the Rs 4,500-crore outstanding loan gets the tag of non-performing asset, or NPA, in banks’ books.
The unsustainability of Essar Power Gujarat (EPG), owing to a cost-tariff imbalance, culminated in the decision taken recently at a lenders’ meeting. The decision has been conveyed to Essar, a senior banker told ET.
Over the next 18 months, banks will have to find a buyer. While Essar would continue to hold 49%, the lenders are expected to place their nominees on the board and call the shots.
“The 18-month standstill period will ensure uninterrupted operations at the 2×600 mw imported coal-fired plant at Salaya (Gujarat), which has a 25-year PPA (power purchase agreement) with GUVNL (Gujarat Urja Vikas Nigam, a discom).
This will not only preserve the value of the asset, but will also ensure continued availability of power to the grid, because these are base load stations,” said a spokesman for Essar Power, of which EPG is a subsidiary.
Impacted by SC Decision
The power purchase agreement with Gujarat Urja Vikas Nigam is for 90% of Essar Power Gujarat’s capacity. Essar Power, the parent, has a total generation capacity of 6,100 mw, of which 4,675 mw is operational. Like some of the other private power producers, EPG has been impacted by the Supreme Court’s decision to not allow power producers to pass on the increase in input costs following a change in duty structure on coal imported from Indonesia.
“The domestic private power sector is reeling under the weight of an unstable policy environment and lack of a unified framework which protects the rights of consumers as much as the fair and reasonable expectations of the producers… EPG was not an NPA as on June 30 or as on September 30, 2017,” said an Essar official. Investments of more than Rs 1 lakh crore are estimated to be under stress across the country for various policy-related issues such as access to coal mines, non-allocation of coal linkages, and state governments’ refusal to honour PPAs and accept any change of terms demanded by power producers (or sellers).
These factors have cast a shadow on the viability of 10,000 mw generating capacity. In fact, EPG and two other private power producers had offered to sell a majority stake to GUVNL for a token sum of one rupee. “Any private company will face the same problem in recovering the fuel cost…But it is felt the tariff can be revised if a government utility takes over the plant.
This is up to the Gujarat government,” said another banker. Under the circumstances, banks chose to invoke a provision similar to strategic debt restructuring (SDR), in which a chunk of the loan is converted into equity to enable lenders take majority control. In case of invocation of pledged equity, the shares against which loans are raised are taken over by lenders.
Source: Economic Times