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The Gujarat government and lenders led by State Bank of India are working on a resolution plan for the electricity generation units of the Tatas, the Adanis, and the Essar group in Gujarat that are making huge losses due to an adverse Supreme Court judgment. The judgment has prohibited coal-based plants from passing on their increased cost to customers. This resolution plan, now in an advanced stage, comes in the backdrop of the lenders agreeing to invoke the strategic debt restructuring (SDR) plan for Essar Power.
Under the plan, all its interest and principal payments have been frozen for the next 18 months.The three companies had earlier offered to sell a 51 per cent stake in their plants for Rs 1 to the Gujarat State Electricity Board but with the assembly elections scheduled to take place in a few months, the government has deferred any decision till the end of the polls. Once the elections were over, the Gujarat State Electricity Board would take 51 per cent equity in the three units, industry sources said. Tata Power, Adani Power, and Essar Gujarat Power — with a combined capacity of more than 9,800 MW — were impacted by the Supreme Court judgment, under which the companies were denied permission to charge higher tariffs, the need for which arose because imported coal from Indonesia became more expensive. Essar executives said on Tuesday the SDR was invoked by the Joint Lenders Forum of the banks in the last week of September and it had become effective from the end of July. Essar has debts of Rs 5,000 crore and Rs 2,600 crore of equity for its 1,200 MW plant. “The company has decided to end the issue and not pump in more equity and approached lenders to take a majority stake,” said an Essar executive. Essar would continue to operate the power plant and the account had not become a non-performing asset, the official said. The company had to go for SDR because the selling price of electricity to the state boards was far lower than its cost price, and it was unable to service its dues. After the lenders take control of the asset, they would invite bidders to buy their 51 per cent stake in Essar unit. If the projects, including those of the Adanis and the Tatas, are bagged by a government entity, it would become easier for the three units to buy coal from local sources. The companies are hoping that with this resolution in play, the value of their residual 49 per cent stake in these subsidiaries would rise and it would be able to exit at a profit. In a recent interview with this newspaper, AM Naik, chairman of L&T, said there were power projects of 20,000 MW that were up for sale in India with no takers.