Yes! you heard it right. At present, Rs 75,000 crore of loans and 46,000 MW of power generation units are at risk, despite fuel re-allocation.
As much as Rs 75,000 crore of loans - or nearly 15 per cent of the aggregated debt to power generation companies - are at risk of becoming delinquent in the medium-term. Further, close to Rs 1.9 lakh crore of loans to six weak discoms, wherein the moratorium under the financial restructuring package (FRP) is ending in the next 18 months, are also at risk if timely support is not extended by the Centre or state governments. These staggering figures have been estimated by CRISIL in a recent report.
Consequently, it is expected that loans to the power sector will moderate in the medium-term and its lending growth, which had hit a high of 34 per cent in FY2011, more than halved to 16 per cent in FY2015. CRISIL expects this trend to continue, given lower incremental sanctions in the last two years and fewer commissioning of capacities expected in future. Also, with risks rising, banks and financial institutions (FIs) are turning more cautious. CRISIL foresees credit growth in the power sector declining further to around 14 per cent in the period till March 31, 2018. Yet, the power sector´s share in total bank credit will remain high at around 9 per cent till then. Outstanding loans of banks and FIs to this sector are expected to reach around Rs 16 lakh crore. Of this, around Rs 9.5 lakh crore would be for generation projects.
CRISIL has estimated that around 46,000 MW of power generation projects (36,000 MW coal-based thermal and 10,000 MW gas-based power projects) are in distress today. Loans to these projects are around Rs 2.1 lakh crore, with about two-thirds lent by public sector banks. CRISIL has classified coal-based projects (76 per cent of the Rs 2.1 lakh crore exposure) into three buckets of risk - offtake, fuel availability, and aggressive bidding. The risk is highest where lenders are exposed to projects that were bid so aggressively that their viability is now being questioned. On the other hand, gas-based projects (24 per cent of the exposure), are weak due to lack of fuel availability.
The 5/25 scheme Analysts believe that nearly 20,000 MW of weak generation projects involving debt of Rs 1 lakh crore can benefit from the 5/25 scheme in the medium-term.
Of this, 15,000 MW are coal-based. Some of these were operating at sub-optimal PLFs because of inadequate feedstock, but coal supplies are improving now. They can further benefit from elongated loan tenures under the 5/25 scheme. Additionally, 5,000 MW of gas-based capacities, having been allocated subsidised RLNG in the recent round of auctions, will be able to service their interest obligations for the next two years.
Therefore, by providing a moratorium on principal repayment under 5/25 till such time, domestic gas production improves can provide relief to these projects. However, as per stipulation, in debt to be structured under the 5/25 scheme, banks will have to bring in an additional lender or ensure zero net present, value loss and the performance of projects even after structuring will be a monitored.
Rs.75,000 crore debt at risk
Today, the risk is highest in 16,000 MW of projects. While some have been boxed into a corner after aggressive bidding, others are facing cost overruns or gas-supply issues. These projects don´t have strong sponsor company support and are not expected to turn viable in the long run even if they are structured under the 5/25 scheme. The exposure of banks and FIs to them was about Rs 75,000 crore as on March 31, 2015.
Rs.1.9 lakh crore debt to discoms at risk The aggregate debt of discoms grew at a compounded annual growth rate of about 20 per cent in the last four years, touching a high of Rs 4.4 lakh crore as on March 31, 2015.
This includes loans from banks and FIs (such as a Power Finance Corporation and Rural Electrification Corporation) as well as bonds issued and loans given by state governments.
Of this, the exposure of banks to discoms is around Rs 2.5 lakh crore - or more than 55 per cent of the entire debt of discoms.
Government support to discoms critical
Till now, central and state governments have prevented the debt of discoms from turning weak by providing financial support. This was reflected in the formulation of the FRP on September 25, 2012. Accordingly, eight weak discoms were restructured and granted a moratorium of three years on principal repayment. Further, a significant portion of their debt-aggregating around Rs 60,000 crore-was converted into bonds with the state government supposed to take them over in a phased manner. Also, as part of FRP commitment, discoms were to increase tariffs and reduce AT&C losses. Commitments by the state governments under FRP, however, are yet to be fully adhered to. Tariff increases have been insufficient and reduction in AT&C losses limited, and the takeover of bonds by state governments within specified timelines as per FRP remains monitored.
Rs.1.9 lakh crore debt of six discoms at risk For six out of eight discoms (refer table 2), moratorium ends in FY2016 and FY2017. Their financials remain weak, while the wherewithal of their respective state governments to offer support is in doubt.
We believe strong government support is necessary to keep the debt of these discoms from turning weak. CRISIL estimates the exposure of banks and FIs to these half-a-dozen discoms totalled nearly Rs 1.9 lakh crore as on March 31, 2015. Lack of support from states or Centre could turn this debt weak. With two-thirds of the exposure in its books, public sector banks are very vulnerable to any backwash.
|Bank and financial institution exposure to power generation projects |
||Number of projects
||Debt (Rs. crore) |
|1. Coal-based capacities at risk
|(a) Off-take risk
|(b) Aggressive pricing
|(c) Fuel unavailability
|2. Gas-based capacities at risk
(Due to lack of availability of gas)
|Rs. 1.9 lakh crore of debt to weak discoms at risk |
||Moratorium ending in
||Debt at risk (Rs.crore) |
Uttar Pradesh, Andra Pradesh,
Bihar and Jharkhand