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Non-performing Power Sector Assets
Desperate attempts to prevent liquidation of power sector assets in companies that are defaulters point to a deeper crisis afflicting neo-liberal growth. A sector that was plagued by shortages was opened up to private participation, leading to rapid expansion in the expectation of large profits from liberalised prices. Public sector banks were called upon to finance that expansion with the government being complicit. Now, however, firms find themselves trapped between inadequate demand at prevailing prices and rising costs that precipitate default.
Having overcome a legacy of extreme shortage of supply, India’s power sector is in the midst of a crisis with ramifications of a wholly different kind. The crisis arises because firms accounting for a significant proportion of power sector assets have defaulted on their debt-servicing commitments, and banks are not able to find ways of restructuring that debt or recouping their money. So the Reserve Bank of India’s (RBI) guidelines require that the assets should be liquidated to recover whatever is possible and compensate banks from which these firms had taken loans, and then defaulted. But the assessment is that liquidation would yield the banks little, if anything at all.
There are 34 projects that have been identified as stressed, accounting for 24,405 MW of commissioned capacity and another 15,725 MW of capacity that is still under construction. The total outstanding debt in these projects is `1.74 lakh crore. The projects are stressed either because the loans concerned have been declared as non-performing assets (NPAs) or are identified as being potential NPAs. Gross NPAs in the power sector were, at the end of June 2017, placed at `37,941 crore, of which as much as `34,244 crore was in generation. But the magnitude of NPAs is set to rise in the coming weeks and months.
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