Even as the pipeline of power generation projects in the country is already weak, about 25,000 Mw of thermal power plants are on sale. These projects belonging to Lanco, KSK, Jaypee, Jindal, Indiabulls, GMR, Athena, besides others, are either operational or in various stages of development. The promoters want to exit the projects to deleverage their balance sheets but are finding it hard to get buyers, said people familiar with the development.
In an indication of stress in the power sector and lull in investment, the projects are ready to fire but no state power distribution company is floating any additional tender for power procurement. Bankers are also are concerned over increasing list of non-performing assets (NPAs).
“Industrial activity is slow. State electricity boards are still battling weak financials. NTPC and state generating projects are meeting the current demand. Independent Power Projects (IPPs) are facing the brunt of it (sluggishness in the sector),” said a sector analyst with a public sector bank.
Among the projects looking for buyers are the commissioned units of Jaiprakash Associates at Bina and Nigrie, totalling 1,820 Mw. Also, 3,800 Mw of Lanco Infratech, 3,600 Mw of KSK Energy, and units of GMR Energy, DB Power, Indiabulls, Avantha and Athena. In some cases, the company is undergoing asset restructuring; others are at different levels of the Reserve Bank of India’s S4A scheme, for restructuring of stressed assets, said an institutional financier.
Essar and Jindal Steel & Power, while learnt to be selling their projects, denied trying to do so. Lanco, GMR and Jaypee did not respond to e-mails sent to their company’s spokespersons. Indiabulls could not be reached.
“Some enterprises are under stress and will look for buyers but no one wants to load their balance sheets and hardly anyone has an appetite (for these assets). The book value of these projects is around Rs 8 crore per Mw. If someone is looking to buy, they would look at a price of Rs 5-5.5 crore per Mw, after a write-off/haircut. Without a write-off, it is not possible,” said Debasish Mishra, partner at consultancy Deloitte Touche Tohmatsu India.
He added that state-owned assets might find some buyer but not IPPs. In past biddings, JSW Energy and Adani Power were reported to be in the race; JSW even acquired some assets. “But, that apart, no serious power player would load their balance sheets when there is no projection of power demand increasing,” said Mishra. The Central Electricity Authority has lowered its estimate of power demand to 235 Gw till 2022, from the earlier 289 Gw.
A recent Credit Suisse report says: “Stress within the power sector continues to rise, as the Ebitda (operating earnings) of larger companies for the sector declined 13% year-on-year (y-o-y) and 18% (quarter-on- quarter); net profit has fallen seven% y-o-y and 34% q-o-q. Private sector plant load factors (PLFs) remain weak at 56%, with merchant tariffs (rates) remaining low at Rs 2.5/kWh. There have been no PPAs (power purchase agreements) signed during the quarter either and stress is likely to continue rising,” it said.
Experts believe that till end of the 13th Plan (2022), any new private investment in the sector looks implausible. Demand projection is not in line with even the ongoing capacity addition, leaving close to 60,000 Mw of under-construction projects looking at a bleak future. Recently, the sector’s key financier, Power Finance Corporation, went in the red as its NPAs rose by 300%, under a new classification norm.
“The thermal segment of the private (power) sector continues to be crippled by huge losses, overhang of unsustainable debt and regulatory delays/inconsistencies regarding under-recovery for incontestable items under a change in category. The question that begs an answer from regulators and policy makers is how the public sector operating in the same system has no such issues. Is this because of high efficiency or differential treatment on critical issues — allocation of natural resources and power offtake agreements?” asks A K Khurana, director general, Association of Power Producers.
In the short term, however, said Mishra, electricity demand might increase, as the monsoon was forecast to be good this year. “The IIP (Index of Industrial Production) numbers might also improve as the demonetisation effect weans off. We could see electricity demand growth increasing to 7.5% during the second half of the year,” he added.