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Letters: Devil is in the detail

The journey of these power plants from overly aggressive bidding to deep financial trouble is well known

Business Standard 

Apropos Dev Chatterjee’s report, “Gujarat may take over Tata, Adani, power plants” (October 11), that the state government, post Assembly elections, will acquire 49 per cent of the troubled assets in these three groups is not surprising. It is an example of the muddled economic thinking of governments and of crony capitalism.
The journey of these from overly aggressive bidding to deep financial trouble is well known. That the promoters failed to exercise proper risk management is clear, as is the slack demand for power and the coal export law changes in Indonesia. Now, under the garb of Rs 1 price for 51 per cent equity, the owners are shifting the financial burden to consumers and taxpayers.

But the devil is in the detail, which nobody is highlighting. Banks are not pushing these companies on to the normal course of insolvency under the Insolvency and Bankruptcy Code, so as to get the best deal from potential bidders.
A central part of the deal is that the state-owned power distribution utility would be forced to buy the entire output at a price that gives a return on equity to the distressed power companies, so that they can service their debts. This price would be considerably more than the true market price of power; it is a transfer of public wealth to the three groups. Moreover, by holding 49 per cent equity and being in management, the groups will continue to benefit from their book profit share and the benefits that may accrue to those who can award major purchase orders.
The groups would be spared the pain of dealing with large bank loans of their subsidiaries. They would retain their clean credit image and not have to consolidate the debts of these troubled companies in the holding companies’ accounts. 
P Datta Kolkata
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First Published: Wed, October 11 2017. 22:34 IST