Opinion | Will India's solution for stressed power assets work as well as the US original?

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

Shishir Asthana
Moneycontrol Research

After deliberating for nearly four years, the government seems to have a solution on how to tackle the issue of distressed power sector projects.

According to various reports, it is on the verge of launching an asset management firm that will hold stressed power assets. The project, to be called 'Pariwartan' for Power Asset Revival through Warehousing and Rehabilitation, will hold 25,000 megawatts (MW) of assets.

The scheme is modeled along the lines of the Troubled Asset Relief Programme (TARP) launched in 2008 in the US to protect such assets after the financial meltdown.

The Pariwartan route will be undertaken to prevent distress sale of power sector assets, which were getting bids of as low as Rs 1-2 crore per MW under the Insolvency and Bankruptcy Code. This was much lower than the Rs 5-6 crore per MW needed to build a plant.

Government-owned Rural Electrification Corp (REC) has identified these projects totaling 25,000 MW, which carry a total debt of Rs 1.8 lakh crore.

The question is: By creating an asset management company that will hold these toxic assets, will the government be able to save them? If not, then the government might as well sell the units to whoever is bidding Rs 1-2 crore.

Among the reasons that the power plants are in their present state of despair are a paucity of funds, the lack of power purchase agreements, and fuel shortage. Unless the asset warehousing company is able to run them profitably with all the agreements in place, the entire exercise will be futile.

As per the report, the promoters' equity will be considerably reduced to facilitate control and the loans from the lending banks will be converted into equity. The asset management company will manage the projects and may ask utilities such as NTPC to operate and maintain them for a fee.

On paper, the entire deal looks good. Rather than selling it at a throwaway valuation, the bankers would possibly gain more by selling it as a running and profitable unit. The big 'if' is will the projects ever be profitable without any additional sweeteners from the government.

The concept of 'Pariwartan' has been taken from TARP, so perhaps the performance of TARP will give an idea of what lies ahead for these assets.

TARP allowed the US Treasury to purchase or insure up to $700 billion of "troubled assets," which were illiquid and difficult to value. TARP took the toxic assets from the hands of banks and institutions and helped the companies stabilize their balance sheets and avoid further losses.

TARP's originally-authorized expenditures of $700 billion in 2008 were cut to $475 billion in 2010 but the actual disbursement was $426.4 billion. In 2014, the US Treasury sold its last holding totaling $441.7 billion, earning a profit of $15.3 billion in the process.

More than the profit, the benefit of TARP was that the banks started lending again.

For India, too it is the indirect benefit of this bailout that will prove more beneficial. Stressed power assets will take their own sweet time to be restored, but as far as banks are concerned, these assets will be off their back. Hopefully, banks, especially public sector ones, will then start lending.