LM: Govt wants discoms to enforce regular electricity tariff revisions

12 July 2019: The National Demoratic Alliance (NDA) government wants state power regulators to ensure regular tariff revision, and put an end to creating the so called regulatory assets, as it seeks to enforce financial discipline on state electricity distribution companies (discoms).

The move seeks to address the ongoing crisis in discoms due to poor financial health, which has led to delayed payment to generation utilities.

A regulatory asset is created when the regulator accepts certain expenditures, but does not factor them in while determining present tariff. The expenditures are adjusted with future tariffs and, in the interim, are accounted for as regulatory assets.

The union power secretary Ajay Kumar Bhalla has written to the Appellate Tribunal for Electricity (Aptel) chairperson Justice Manjula Chellur requesting the enforcement of its previous order of November 2011. The Aptel order issued to the state electricity regulators pertained to “ensuring regular and timely revision of tariffs, including regular truing up of tariffs,” and “non creation of fresh regulatory assets, allowing carrying cost of the past regulatory assets”. Discoms have been the weakest link in the electricity value chain.

“Distribution sector is a crucial element of the entire electricity value-chain. Sustainability of the Power Sector is critically dependent on the sustainability and growth of Distribution sector. lt has been observed that the Regulatory Assets of the State Discoms have increased considerably during recent years despite the directions issued by APTEL that no fresh Regulatory Assets were to be created by the State Commissions. This has resulted in financial stress in the sector, impacting sustainability of the electricity sector,” said the communication dated 25 June reviewed by Mint.

“No system in the world can take these kind of losses,” said a senior government official requesting anonymity.

Discoms have so far been the weakest link in the electricity value chain. Poor payment records of state-owned discoms have not only adversely affected power generation companies, but have also contributed to stress in the banking sector. The power sector is reeling under bad loans worth about ₹1 trillion, with around 66 gigawatts (GW) facing various degrees of financial stress.

“May I request you to kindly look into the matter and issue suitable orders for enforcement of the directions as identified by APTEL in the order dated 11.11.2011 in OP 01 01 of 2011 and may also seek compliance by all the states through Forum of Regulators,” the letter stated.

A power ministry spokesperson declined comment.

The communication also comes in the backdrop of the government’s plan to expedite the separation of the “carriage and content operations” of discoms, letting people and companies in India buy electricity from a firm of their choice. A power sector package, comprising a new tariff policy and structural reforms, is also in the offing, finance minister Nirmala Sitharaman said in her maiden budget speech on Friday.

“Government of lndia has taken several initiatives to address the problem of Distribution sector. UDAY scheme was launched by Govt of lndia in the year 2015 to improve financial health of Discoms. We have recently achieved the target of ‘100% village electrification and almost 100% house hold electrification. Now, assuring 24×7 quality and reliable power to consumers is the next milestone. This will require robust and financially sound Distribution sector in place,” the letter said.

The new government is trying to step up its efforts to supply 24×7 power to all. As of September 2015, the total debt of all state-owned discoms was around Rs2.45 trillion, with Rs0.8 trillion serviced by the states. Also, the annual discom losses in FY16, FY17 and FY18 were funded through borrowings.

In an attempt to ensure timely payments by states to electricity generation utilities, the government has also made it mandatory for state discoms to offer letters of credit as part of the payment security mechanisms in power purchase agreements.

Accordingly, the National Load Dispatch Centre and Regional Load Dispatch Centres have been directed by the power ministry to “dispatch power only after it is intimated by the generating company and distribution companies that a letter of credit for the desired quantum of power has been opened and copies made available to the concerned generating company.” The provisions take effect from 1 August.

The LiveMint reported

Zeebiz: Banks under PCA framework to be barred from buying retail assets of NBFCs

12 July 2019: State-run lenders currently under the RBI`s Prompt Corrective Action (PCA) framework on account of bad loans and heavily loss making banks may not be allowed to buy the pooled retail assets of non-banking finance companies (NBFCs) under the scheme announced in the Budget, official sources said, which may leave space for only SBI, Canara Bank, Bank of India, Bank of Baroda to make such purchases.

In the Budget 2019-20, the Centre has allowed a one-time, partial credit guarantee of six months to public sector banks (PSBs) on their first loss of up to 10 per cent for purchase of high-rated pooled NBFC assets of Rs 1 lakh crore. 

This is likely to provide the better-run NBFCs access to liquidity. The partial credit guarantee from the government would help NBFCs raise funds from PSBs, providing them urgently needed funding support . 

They PSBs will be allowed to buy only `AAA` rated retail assets and those a notch below, the sources said. They, however, have their own non-performing assets (NPAs or bad loans) issues and have just started to slowly come out of their bad loan situation but are still not out of the woods. 

While the eligibility norms for PSBs to buy such assets are still to be issued by the Reserve Bank of India (RBI), the Finance Ministry and RBI will ensure that banks currently under lending restrictions under the PCA, or non-PCA banks incurring huge losses and still have an asset-liablity mismatch, will not buy the NBFC retail assets, according to informed sources here.

In a move to help both the NBFCs and PSBs, the RBI had also announced a scheme allowing banks to borrow from the central bank by pledging their excess government bond holdings to fund the purchase of NBFC assets, which can release liquidity of up to Rs 1.34 lakh crore. 

Bank of Baroda reported narrowing its losses down to Rs 991.37 crore in the January-March quarter from Rs 3,102.34 crore in the corresponding quarter last year. Punjab National Bank posted a loss of Rs 4,750 crore for the last quarter of the fiscal ending March 2019. 

The State Bank of India (SBI) posted a net profit of Rs 838 crore in the March quarter against a loss of Rs 7,718 crore in the same period a year earlier. While Central Bank of India`s fourth quarter loss widened to Rs 2,477 crore on high provisioning, the Canara Bank loss in the same quarter narrowed to Rs 551 crore on lower bad loans. 

Bank of India returned in the black after two quarters by posting a profit of Rs 252 crore for the quarter ended March 31, against a loss of Rs 3,969 crore during the same period last year. 

The Modi government recapitalised state-run lenders with Rs 1.6 lakh crore in 2018-19, the highest ever so far. The move helped five banks come out of the PCA framework. 

In her maiden Union Budget presented last week, Finance Minister Nirmala Sitharaman announced a Rs 70,000 crore capital infusion into PSBs in an effort to boost credit. Only five of these — United Bank of India, UCO Bank, Central Bank of India, Indian Overseas Bank and Dena Bank — now remain under the PCA framework.

A year after a series of defaults by Infrastructure Leasing and Financial Services (IL&FS) forced the government to intervene, the problems of India`s NBFCs are entering a new phase, which poses a new challenge for the RBI. 

India`s financial regulator in its latest Financial Stability Report has spelt out its concerns about the implications of the country`s spreading shadow banking crisis, saying any failure among the largest of the NBFCs could cause losses comparable to a collapse among commercial banks.

As reported on Zeebiz

ET: Debt respite for Rel Infra and Power

12 July 2019: Reliance Infrastructure and Reliance Power got a respite from lenders, who granted them more time to resolve debt issues, triggering a rise in the shares of the two Anil Ambani-led firms.

R-Infra signed an inter-creditor agreement (ICA) with all its lenders, while the power company announced a debt-restructuring deal with US Exim Bank for its Samalkot project. The two firms have been facing a liquidity crunch that has hurt their ability to repay debt.

The parent Reliance Group is grappling with issues in other affiliates as well, such as Reliance Communications (which is facing insolvency) and Reliance Capital (which is strapped for funds and has seen its credit rating being downgraded).

The deal with lenders buoyed RInfra shares, which rose almost 11 per cent to Rs 51on the BSE on Thursday.

Shares Gain

R-Infra shares have traded in the range of Rs 37.30 to Rs 488.50 in the past year. The Reliance Power scrip gained 5.5 per cent to Rs 4.21, having traded in the range of Rs 3.95 to Rs 39.25 in the past 52 weeks, according to BSE data.

RELIEF FOR R-INFRA

The ICA with 16 lenders gives R-Infra 180 days to resolve its debt crisis. Such agreements set the ground rules for resolution of stressed assets when a borrower is unable to repay. “Reliance Infrastructure is confident of implementing its resolution plan well before the 180-day deadline based on advanced progress of its various asset-monetisation initiatives,” the company said in a statement.

R-Infra reported its worst quarterly loss in Q1 of FY19 due to impairments and write-offs, with its auditors adding a disclaimer that they did not have sufficient evidence to determine if the numbers give a “true and fair” view of losses and income. The auditors — BSR & Co and Pathak HD & Associates — raised questions about the company’s ability to continue as a going concern. In view of this and the company’s exposure to cash-strapped RPower, rating agencies have downgraded R-Infra to the lowest grade, indicating an imminent default.

The company plans to monetise assets to raise funds as it aspires to be debt-free by 2020. It has signed an agreement to sell its Delhi-Agra Toll Road project to Cube Highways & Infrastructure for an enterprise value of over Rs 3,600 crore. The deal is expected to conclude by the end of August.

R-Infra is also planning to monetise 700,000 square feet of its commercial property — the Reliance Centre in Mumbai’s Santacruz suburb — by way of long-term lease. ET had reported about this transaction on July 1.

RESPITE FOR R-POWER

US Exim Bank has agreed to amortise R-Power’s repayment schedule into bullet payments and extend the loan maturity to June 2022, from the earlier timeline of 2019-20. It has agreed to maintain the interest rate at 2.65 per cent per annum for the troubled Samalkot project, a company source said.

R-Power had to undertake an impairment in the last quarter of FY19 for the gasbased project that has been rendered defunct due to lack of fuel. At the end of fiscal year 2018-19, US Exim Bank had in principle agreed to restructure the term loan but that was subject to completion of certain conditions by May 31, 2019, which did not happen. The loan has now been classified as a current liability. This had worsened the mismatch between the company’s assets and liabilities.

“With the completion of documentation for recast of Rs 2,430-crore loan, the debt which stood classified as ‘current’ will now become ‘non-current’, eliminating the mismatch between current assets and liabilities on this account,” a company spokesperson said.

R-Power has sold one 750 mw unit from the project and is looking to sell two more. The sale proceeds will be used to pare debt.

Reliance Group head Anil Ambani had said on June 11 that the conglomerate was working to meet debt obligations and creating shareholder value, while blaming financial institutions for not extending support. He had also referred to the huge claims stuck in arbitration, and the “most challenging financial environment witnessed in the country in decades” for the group’s woes.

The Economic Times reported

TOI: Supreme Court assures Jaypee homebuyers to protect their interest

12 July 2019: The Supreme Court said that it would intervene to protect Jaypee homebuyers if the resolution plan under the insolvency proceedings failed on Thursday. It is likely to step in order to stop liquidation of the company to safeguard the investment of the buyers. It asked all the parties to work together including NBCC and creditor banks, to sort out differences over the plan. 

After failing to come up with a policy to protect buyers’ interest, the Centre urged a bench headed by Justice A M Khanwikar to adjourn the hearing as the case was listed before the National Company Law Appellate Tribunal (NCLAT) on July 17 for a final decision on the resolution plan. It posted hearing for July 18. The court said in an attempt to take over Jaypee Infratech Ltd which is facing insolvency proceedings, the parties should explore all possibilities to pave the way for other builders.

The bench has assured the homebuyers that their interest would be protected, they have urged the bench to pass an interim order to stop liquidation of the company, according to a newspaper report. “We should wait for the outcome of the tribunal proceedings. We also want the government to explore all possibilities. If the proposal (resolution plan) given to the tribunal is acceptable to all, then the problem will be solved,” the bench said.

It may be noted that in 2017, Jaypee Infratech went into insolvency after the National Company Law Tribunal (NCLT) admitted an application by an IDBI Bank-led consortium seeking action under the Insolvency and Bankruptcy Code (IBC).

After the creditors rejected NBCC’s bid to acquire Jaypee Infratech, the NCLAT had directed representatives of banks, allottees and other stakeholders to appear before it on July 17 to consider how the bid could be tweaked for the homebuyers’ benefit.

The bid to acquire the insolvent Jaypee Infratech Ltd (JIL) was put to vote from May 31, 2019 to June 10, 2019 and a majority of the lenders, led by IDBI Bank, voted against the bid on the grounds that it was conditional. However, home buyers were in favour of the bid.

It may be noted that the NBCC’s bid seeks the cancellation of an estimated income tax liability of Rs 33,000 crore due over a period of 30 years under the concession agreement for the transfer of land from the Yamuna Expressway Industrial Development Authority to JIL.

On June 20, in the committee of creditors’ (CoC) meeting, the offer was discussed and it was decided that resolution professional (RP) Anuj Jain would inquire from AIDPL about the completion timeline.

The Times of India reported