Power News We love to talk!

APR 20 2017

'Amendments to Mega Power Policy 2009 gives breather to banks'

  • Economic Times, ET Bureau / Hyderabad
  • Created: Thu 20th APR 2017

The extension by five years for complying with the Mega Power Policy 2009 norms will reduce contingent liabilities and free up banking limits to 25 mega power projects, thus granting them a fresh lease of life, says a report.

According to a report by India Ratings and Research (Ind-Ra), this move will also in turn free up banks' potential exposure to the power sector by around 3.50 per cent or Rs 4,000 crore, providing them additional headroom to lend to the power sector.

"This is applicable to 25 mega power projects of around 32,330 MW of coal and gas based power plants which have provisional certificates, but are awaiting the final mega power status," it said.

Ind-Ra said these projects would have needed additional debt or the sponsors may have had to inject additional equity to settle the bank guarantee obligations, which would have devolved in the absence of an extension in timeline as per Mega Power Policy.

"While the extension is likely to provide some comfort in terms of lower finance costs, the lack of long term Power Purchase Agreements (PPA) may prohibit these plants from availing the full benefits under the policy," it said.

The Cabinet Committee on Economic Affairs has extended the timeline available for furnishing the final mega certificates (from the date of receiving provisional mega certificates) to 120 months from the earlier 60 months from the date of import to avail all the benefits under the policy.

Also, tax concession under the amended policy will be in the proportion of the long term PPA tied up, instead of requiring 85 per cent or more long-term tie up.

The proceeds out of the release of bank guarantees, submitted by the generators till the final mega status is received, have to necessarily be utilised towards reduction in project debt by the developer.

It pointed out that most states have become averse to buying power on a long-term basis, since short-term tariffs are more economical.

Ind-Ra expects long-term PPAs to be scarce, given the weak industry demand.

"Extension of the timeline to tie-up long term PPAs in the current challenging market is a breather for all the power plants which have a provisional mega power status but are awaiting the final conformation," Ind-Ra said.

It, however, noted that clarity is still awaited in operationalising the policy, including aspects of reimbursements for taxes paid, treatment of PPAs signed with home states for selling 35 per cent of the power, which are not operationalised, among other details.



Banking Finance Coal Gas Import Tax Cabinet Committee on Economic Affairs Mega power projects Power India

Related News

  • Madhucon Projects to divest part stake in power subsidiary  Read more
  • Electricity may get costlier due to rise in coal prices  Read more
  • TCS set to overtake ONGC in dividend payout  Read more
  • Power Outages may fall as coal stocks improve at plants  Read more
  • IL&FS; enters into JV with ORIX Corp. for wind energy projects  Read more
  • PM Narendra Modi to announce Ujjwala Plus scheme from Red Fort; to unveil giving scheme too  Read more
  • Jindal Power suffers another blow with cancellation of its LTOA to SR for transfer of 150 MW  Read more
  • Government seeks views on new guidelines for solar projects  Read more
  • Total electrification works completed in Kannur  Read more
  • Biggest Indian solar project stalls as Jharkhand balks at cost  Read more