A new asset reconstruction company, as envisaged in the Pariwartan scheme proposed in June this year, is likely to be incorporated by October 2018, reliable media reports suggest.
The ARC will give an opportunity to lenders to park, for a finite period of time, their stressed assets that are undergoing liquidation under the National Company Law Tribunal (NCLT).
Rural Electrification Corporation is understood to be the nodal agency spearheading the formation of the ARC. The new ARC, which will be incorporated in October this year, will first need permission from Reserve Bank of India and will be registered as an asset reconstruction company.
The ARC will provide an opportunity for stressed power assets to be “reconstructed,” potentially obviating liquidation under NCLT. The asset will continue to be treated as NPAs in the books of the lenders but they will have a special “asset under reconstruction” status, as recognized by RBI.
The ARC is a consequence of the Pariwartan (Power Asset Revival through Warehousing & Rehabilitation) scheme proposed by the government in June this year.
The magnitude
It is estimated that Rs.1.74 lakh crore of assets in the power generation sector (mainly comprising coal-fired power plants) are facing liquidation since they have failed to repay their debts within the 180-day schedule, as defined by RBI in its circular of February 12, 2018. Around 34 power generation plants, aggregating 25,000 mw, have turned into non-performing assets, and are facing liquidation procedures. These include assets both under construction and in operation. Issues confronting the power plants include absence of power purchase agreement, fuel supply agreement, etc.
How it works
As part of the Pariwartan scheme, stressed power assets will be transferred to the new ARC at book value. The ARC will hold 51 per equity in the asset. The new ARC will be owned by Central power PSUs, lending institutions and even borrowers (current owners of these stressed power plants). An operations and maintenance (O&M) contractor will also be involved that will run these power plants. This operator will most likely be NTPC, the Central PSU power generation firm. Current owners will reduce their equity stake in favour of lenders. With this, some amount of outstanding loan will be converted into equity. The government will support the revival of the power generation plant through various means, including assuring coal supply.
Assets will be under the ARC’s purview for a period of 4-5 years, after which they will be auctioned. Currently, the auction of stressed assets under the Insolvency and Bankruptcy Code (IBC) is learnt to have drawn bids in the range of just Rs.1-2 crore per mw, as against the capital cost of Rs.5 crore per mw.
Outlook
Experts feel that power generation assets are currently stressed for a variety of reasons. However, once demand for electricity picks up, which is very imminent in the wake of aggressive village and household electrification schemes, these assets can turn profitable.
Featured photograph, for illustrative purpose only, shows a thermal power generation plant under construction
