Banks move to recast power sector loans
There is some current good news, from banks, for those who despair of state-run electricity distribution utlilities setting their finances in order.
A number of state electricity boards (SEBs) or distribution companies (discoms) which had taken short-term loans from banks for liquidity support have found themselves in no shape to repay as committed. Some requested a loan recast; others are going to be joining the queue.
At present, talks are on between the Uttar Haryana Bijli Vitaran Nigam and its lenders, and between its counterpart in Tamil Nadu and the latter’s banks. The issue is extension of interest payment schedules, beside increasing the repayment period for the principal sum borrowed.
“Restructuring proposals from Rajasthan and Punjab are expected to reach bankers in the January-March quarter,” said Subhalakshmi Panse, executive director, Vijaya Bank.
There are other state agencies which had taken short-term loans (which run for around a year) from banks to bridge their revenue gaps. With repayment due, discussions on restructuring these have begun or soon would.
“The situation has become unviable, with state governments resisting tariff (rate) increases, in some cases for several years, and with discoms forced to procure short-term power, which is not cheap. They resorted to general and short-term loans from banks for liquidity support and these repayments come early, even as discoms are in no better shape to repay,” said Kameswara Rao, the power practice head at PricewaterhouseCoopers.
Kuljit Singh, partner and industry leader of infrastructure at Ernst & Young, said worries over loan repayment issues have been dragging down state electricity boards for a long time.“Some of these cases would come in for restructuring before the (ongoing) elections and some will come after they get over,” he said.
Rating agency Crisil had estimated the cumulative net losses of all distribution companies at Rs 35,000-40,000 crore for 2010-11. “The widening gap, because of inadequate and delayed tariff revisions, high aggregate technical and commercial losses, and sizeable outstanding debt with significant interest costs, have led to the mounting losses,” the agency said.
The Shunglu committee, that went into the issue, has recommended some support from the government. It has asked for a special purpose vehicle to be formed which would get support from the Reserve Bank of India, to buy out bank loans to SEBs.
Meanwhile, the banks are known to have made up their mind on tough conditions. Any restructure would come with covenants. One is regular revisions in rates.
A top official from Punjab National Bank, which has a total exposure of Rs 6,900 crore to state utilities, said banks were working together on restructuring some of the SEB loans. “The state governments are cooperating in contribution additional equity and giving guarantees on restructuring,” he said.
“Banks could come up with conditions while restructuring to safeguard their own interests. The most important condition would be an increase in tariffs on a regular basis, to reflect recovery of costs,” said Salil Garg, director of Fitch Ratings India.
“Unless serious reforms come in, both in distribution and in old generation plants, any bailouts extended would only be a temporary palliative. The greater risk is that sticky loans and higher tariffs could drag the banking and manufacturing sectors down as well,” Rao said.