25,000-Mw thermal power projects on sale, but buyers missing

Another mega NPA list may be in the making for lenders

About 25,000-Mw capacity in thermal power is on sale but finding buyers is posing a challenge.

Most promoter companies of the projects — some operational and others still under development — want to exit to lighten their debt.

Among the projects looking for buyers are the commissioned units of Jaiprakash Associates (1,820 Mw), Lanco Infratech (3,800 Mw) and KSK Energy (3,600 Mw). Some units of GMR Energy, DB Power, Rattan India, Avantha and Athena are also on the block. 

Sources said the projects in question were “ready to be fired up” but no state power distribution company was floating tenders for additional power procurement. To add to the woes, banks are concerned about non-performing assets (NPAs) increasing.

At an average market valuation, assets worth over Rs 1 lakh crore are on the block.

“Industrial activity is slow,” said a sector analyst with a public sector bank. “State electricity boards are still battling weak financials. NTPC and state generating projects are meeting demand. Independent power projects (IPPs) are facing the brunt of it (sluggishness in the sector).”

In some cases, companies are undergoing asset restructuring, while others are at various levels of the Reserve Bank of India’s S4A scheme for restructuring stressed assets, says an institutional financier.

Essar and Jindal Steel & Power (JSPL) denied they were trying to sell their units. JSPL and Jindal Power were not looking to sell any core assets, including the 2,400-Mw thermal power capacity at Tamnar, Chhattisgarh, said a JSPL spokesperson. Lanco, GMR and Jaypee did not respond to e-mails. Rattan India could not be reached.

Debasish Mishra, partner at consultancy Deloitte Touche Tohmatsu India, said: “Some enterprises are under stress and will look for buyers but no one wants to load their balance sheets and hardly anyone has an appetite (for these assets). The book value of these projects is around Rs 8 crore per Mw. Prospective buyers will look at a price of Rs 5-5.5 crore per Mw, after a write-off/haircut. Without a write-off, a sale is not possible.”

State-owned assets might find some buyer but not IPPs, he said. In past biddings, JSW Energy and Adani Power were reported to be in the race to buy such projects. JSW had even acquired some assets. “That apart, no serious power player would load their balance sheets when there is no projection of power demand increasing,” said Mishra.

The Central Electricity Authority had lowered its estimate of power demand to 235 Gw till 2022, from 289 Gw.

A recent Credit Suisse report said: “Stress within the power sector continues to rise, as the Ebitda (operating earnings) of larger companies for the sector declined 13 per cent year-on-year and 18 per cent quarter-on-quarter; net profit has fallen seven per cent y-o-y and 34 per cent q-o-q. Private sector plant load factors (PLFs) remain weak at 56 per cent, with merchant tariffs (rates) remaining low at Rs 2.5/kWh. No PPAs (power purchase agreements) were signed during the quarter and stress is likely to continue rising.”

Experts said that till the end of 2022, new private investment was unlikely. Demand projection has not been in line with capacity addition, leaving close to 60,000 Mw of under-construction projects looking at a bleak future. Recently, the sector’s key financier, Power Finance Corporation, reported losses for the first time as its NPAs rose 300 per cent.

“The thermal segment of the private (power) sector continues to be crippled by huge losses, overhang of unsustainable debt and regulatory delays/inconsistencies regarding under-recovery for incontestable items under a change in category,” said A K Khurana, director general, Association of Power Producers. “The question that begs an answer from regulators and policymakers is how the public sector operating in the same system has no such issues? Is this because of high efficiency or differential treatment on critical issues — allocation of natural resources and power offtake agreements.”

In the short term, however, said Deloitte Touche Tohmatsu’s Mishra, electricity demand might increase, as monsoon was forecast to be good this year. “The Index of Industrial Production numbers might also improve as the demonetisation effect weans off. We could see electricity demand growth increasing to 7.5 per cent during the second half of the year.”

Weak demand

• Most promoter firms of projects want to exit to lighten debt
• These project belong to Lanco, Jaypee, Rattan India, KSK Energy, GMR Jindal, among others
• 60,000-Mw projects face a bleak future as demand fails to increase