To deal with stressed assets, the government has cleared 3760 MW projects worth Rs 31,560 crore. This is a small step for a sector which is sitting on close to 25,000 MW of stressed assets.
With a view to provide a sentimental boost amid a sagging investment climate, the Union Cabinet on March 7 approved a slew of measures for the domestic power sector, particularly related to stressed assets.
Broadly, the policy action seems to be moving in two directions. First, it partly addresses issues of stressed power assets mainly for coal based power generation capacity. Secondly, steps have been taken to revive the hydro power sector in the country, especially to attract private participation in the sector.
To deal with stressed assets, the government has cleared 3760 MW projects worth Rs 31,560 crore. This is a small step for a sector which is sitting on close to 25,000 MW of stressed assets and having investments to the extent of about Rs 1.25-1.5 lakh crore, thereby accounting for close to 6 percent of the NPAs.
Nevertheless, the Cabinet announced providing coal linkages for the short term power purchase agreements (PPA) and companies can now continue to have coal linkages even if the PPAs are terminated. This will help many of the stressed companies as they have flexibility to select customers in the market banking on secured coal supply. That apart, the quantum of coal availability through auction will be increased for the power sector.
This increased availability of coal should result in higher PLF and also lower cost as it is cheaper than the cost of coal procured from the international market or spot market.
Measures have also been taken to tighten the payment cycle. There is a provisions for a late payment surcharge, which will discourage the wilful payment delays thus improving the cash conversion cycle.
While these measures could marginally help these stressed companies in the medium term, the larger picture still remains bleak and it seems the policy action taken is too late and too little.
Private players have been shying away from hydropower and those who tried their hands have already exited in the past. Hydropower is a complicated business and there is huge cash flow uncertainty along with policy hiccups.
Thankfully, the Cabinet approved that large hydro power projects of over 25 MW would now come under the renewable power purchase obligation category. This would ensure that states now have the obligation to purchase power from these plants under the renewable obligation. This would provide an opportune market for these plants and improve demand for hydro power in the country thus their utilisations will move up and realisations will improve.That apart, measures such as tariff rationalisation and extension of debt repayment period to 18 years should partly ease the worry for hydro power producers like state utilities NHPC and SJVNL.