SC WILL SET COURSE FOR POWER SECTOR

Centre’s plea on exemption for power sector from RBI’s tighter loan default rules might be clubbed with petitions before apex court against the change

Clarity on whether the Reserve Bank of India can make an exception for the power sector from the applicability of its Feb 12 notification is dependent on a Supreme Court hearing in another case, involving almost a dozen non-power industries. The case is scheduled to be heard in the apex court on August 7.

Clarity on whether the Reserve Bank of India (RBI) can make an exception for the power sector from the applicability of its February 12 notification is dependent on a Supreme Court hearing in another case involving a dozen non-power industries, which is scheduled to be heard in the apex court on August 7.

“The RBI is of the view that the power sector case should be decided along with others in which around 11 other industry have raised objections to the notification,” said a person close to the development. Since those matters are pending in the Supreme Court and are due to be heard on Tuesday, the Allahabad High Court is likely to receive the RBI submission on Thursday and a hearing is expected on Friday.

The RBI is likely to seek clubbing of the cases in the Supreme Court. If the court allows it, all the matters might be heard together in the apex court, said the person quoted above. The petitioners in Supreme Court cases are Swiss Ribbons, Shivam Water Treaters and Ganesh Prasad Pandey who have challenged various provisions of the Insolvency and Bankruptcy Code and the Companies Act, 2013.

Simultaneously, the government is looking at bringing a total of 34 coal-based thermal power plants out of their present financial distress. Twelve of these plants are already commissioned. For them, the government has asked the Allahabad High Court an extension of six more months beyond August 27 before the February 12 notification is applied to them.

Lenders have got debt sustainability ratings done for these power plants. About 10-11 of them are being bid out to new owners outside of the insolvency resolution process at the National Company Law Tribunal (NCLT). Among them are projects of GMR and KSK that are expected to get new buyers under the Samadhan scheme, framed by lenders led by State Bank of India.

“Another eight out of the 34 (cases) have been resolved and are standard accounts (with lenders) because of SHAKTI (the scheme to reallocate coal linakes transparently) and other measures, while 14 are already in or are in the process of going to the NCLT,” said an official.

The private power producers had filed a case against the February 12 circular of RBI at the Allahabad HC and the government has supported their view, by arguing that RBI give six months more for resolution of cases where debt restructuring is on.

The RBI order and after

In the February 12 circular, issued to all banks and financial institutions, the RBI withdrew all earlier debt restructuring schemes (like SDR and S4A). Instead, it issued tighter rules for all accounts with aggregate exposure of the lenders at ~20 billion or above, on or after March 1, reference date for the circular. These cases included those where a debt resolution process under the earlier schemes was on, as well as those classified by banks as restructured standard assets. Under the circular, lenders had to initiate insolvency proceedings within 15 days after the expiry of 180 days from March 1, 2018, if the default was triggered on that day; or 180 days from the date of the first such default if it happened after the reference day.

The government fears more power projects might, in this manner, come in the stressed loan category. Besides coal-based power plants, there are around 10 gasbased ones with a capacity of over 6,000 Mw that are under financial stress, primarily due to unavailability of the fuel.

The Allahabad HC had on May 31 put on hold any action against the power sector under RBI’s circular. It had also directed the Union finance ministry to ensure meetings with all stakeholders and see if any solution outside the RBI’s resolution process was workable. After holding these meetings, the department of financial service prepared a report that sought extension of time for 12 power plants.