Panel seeks ARC for power companies’ stressed assets

New Delhi : A panel headed by Sunil Mehta, non-executive chairman of Punjab National Bank, may suggest that stressed assets in the power sector should be resolved by a new asset reconstruction company, a senior government official said.

Resolution of stressed assets in the power sector through an asset reconstruction company will be one of many recommendations this panel will make to Finance Minister Piyush Goyal, the official said. The proposed asset reconstruction company, if approved, will acquire the viable stressed assets from the power sector and put them up for auction to be purchased by power companies such as NTPC, the official said.

“There is a thinking that the stressed assets in the power sector that are viable may be taken up by such an asset reconstruction company for resolution,” he said. “The companies operating in the sector like NTPC or some private sector companies keen on operating the asset may take over individual projects after valuation.”

On Jun 8, the government had set up a committee to examine whether creation of an asset reconstruction company or asset management company would help in faster resolution of stressed assets. The committee was given two weeks to submit its report. Another official said some private sector banks as well as infrastructure finance companies have expressed interest in investing in the proposed asset reconstruction company.

“In the initial discussions some of the private sector lenders, infrastructure finance companies have shown interest in investing in an asset reconstruction company that may look to resolve viable stressed infrastructure projects that are stuck for lack of funds or minor sectoral headwinds,” the second official said.

Apart from investments from private companies, the proposed asset recast company may also get investments from the National Infrastructure Investment Fund, the official added. There are 34 stressed assets in the power sector with a capacity of 40,000 MW and about Rs 2 lakh crore worth of debt, making it one of the largest contributors to the overall stressed assets in the banking sector.

The asset reconstruction company will come as a relief to the troubled power sector. The Reserve Bank of India’s new resolution framework for stressed assets, released on Feb 12, pushed for faster resolution of stressed assets, and did away with previous schemes such as Scheme for Sustainable Structuring of Stressed Assets, or S4A, among others. However, the Allahabad High Court, on Jun 1, had stayed the application of the RBI’s new resolution framework on petitioners.

The Independent Power Producers Association of India, comprising private sector power producers, had filed a case against the implementation of the RBI’s new norms. The court had also directed the finance ministry to hold consultation with stakeholders in June to consider the grievance of power producers and try to work out a solution outside the RBI’s resolution process if possible.

Following this, Financial Services Secretary Rajiv Kumar met Power Secretary Ajay Kumar Bhalla, RBI officials, coal ministry officials and other stakeholders last week.

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