Power trip = Rs56,000 crore loans at risk for banks

The power sector’s troubles may be about to rub off on its lenders.
Going by a Crisil report, nearly 12% of the total loans of Rs4.8 lakh crore to the power sector could be at risk by March 2013 unless reforms are carried out urgently.

Besides banks, there are specialised lenders to the sector such as Power Finance Corporation and Rural Electrification Corporation, whose money is at risk here.

“Around Rs56,000 crore of these lenders’ exposure is potentially at risk, if there is no meaningful progress on reforms in the next 18 months,” said the report.

It attributed concerns over the quality of power sector loans to the escalating losses and debt levels in distribution companies (discoms) and shortage of fuel, especially coal, for power generation.

Of the Rs4.8 lakh crore loans, around `3 lakh crore are to state power utilities.
The total losses of discoms, after accounting for subsidies, are estimated to have increased from `27,500 crore in 2009-10 to `35,000-40,000 crore last fiscal.
The worst-off may be Tamil Nadu and Rajasthan, which had taken debt mostly to cover their losses of `32,000 crore and `32,900 crore, respectively in March 2010.
For the quality of the power sector loans to be stable, the tariffs should be hiked 50% for discoms to break even and companies should be able to pass on the increase in the cost of fuel to consumers, said Roopa Kudva, managing director and chief executive, Crisil.
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Several states, including Rajasthan, Karnataka, Orissa and Delhi, have already hiked tariffs by more than 20%, but the increase is still considered inadequate for the discom’s finances.
Also, distribution losses should be brought down to 15% from 27-28% today, she said.
Despite these concerns, power sector advances are expected to increase to `7.3 lakh crore by March 2013.
According to numbers released by the RBI, at the end of August, bank loans to the power sector were up 36% over the previous year.
H D Khunteta, chairman and managing director, REC said he is not unduly worried about its exposure to the SEBs of Rajasthan and Tamil Nadu. “We have loans outstanding of `8,000 crore to each and we have not had a single default so far. Rajasthan has already raised tariffs and Tamil Nadu and Uttar Pradesh have said they would hike their tariffs by 25-30% after the elections,” he added.
Tamil Nadu had the second and final phase of its local body polls on Wednesday and Uttar Pradesh will have assembly elections next year.
Khunteta, however, said REC sanctions a loan to a power developer only if the fuel supply and power purchase agreements are in place.
The country has in the last three weeks faced a severe shortage of coal owing to a mix of factors such as severe rains, Telengana protests and a strike by Coal India workers for better pay. About one-third of the 86 coal-fired plants monitored by the government on a daily basis have coal for just four days, according to an October 17 report by CLSA Asia Pacific Markets. Private power produces are increasingly acquiring coal blocks overseas to fuel their capacity expansion plans.
H K Vesuna, chief general manager, corporate credit, Central Bank, said the books of state electricity boards (SEBs) are not very satisfactory, due to which banks having exposure to them run the risk of the loans turning bad. “We will prefer private sector projects to SEBs,” he said, without revealing his bank’s exposure to the power sector.
India has an installed capacity of over 180,000 mw and a further 56,000 mw under implementation.