A government committee has suggested Rs 6.05-7.03 per unit variable tariff for six plants using imported coal that are owned by companies such as Tata Power, Essar Power and JSW Energy, said people with knowledge of the matter, marking a step toward restarting them to ease the electricity shortage. The power companies said the tariffs are good enough for them to start generation, but state electricity distribution companies that have purchase agreements with these plants said they were examining the rates. These are benchmark tariffs that are proposed to be revised weekly or fortnightly in line with international coal prices for units that have a cumulative 8.2 GW capacity Some of this capacity is expected to be operational in the next 20 days. The parties involved can either agree to this benchmark or reach mutual agreement on different tariffs. In case state distribution companies do not buy this power, these plants will still have to operate but sell electricity on the power exchanges. The committee has calculated tariffs for six of the 13 imported coal-based plants mandated to run under the Section 11 order invoked by the power ministry on May 5 to ease power and domestic coal availability, amid projections of 220 GW electricity demand this summer.
Lenders, including the State Bank of India, Punjab National Bank and Bank of Baroda, have agreed to extend fresh working capital loans to six power projects lying idle for the past many years, including four imported coal-based units. Also, sector-specific lenders Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) have initiated discussions with several units that are either shut or are operating at very low plant load factor. The lenders' moves follow the directions given by the Union power ministry to them to help the stuck power plants resume generation with working capital support. The government reckons that the electricity shortage in the country may not show any let¬up over the next few weeks due to the high demand in the scorching summer.
The power crisis has come to the aid of independent producers who were finding it difficult to recover electricity dues from state governments. It has also given a fresh lease of life to power projects facing liquidation. In its meeting on operationalising commissioned power plants, the power ministry got states to agree on payments to power producers. In the case of IL&FS Tamil Nadu Power, which has two projects of 600MW in the southern state, it was decided in the meeting that Tangedco, which distributes power in Tamil Nadu, would pay Rs 75 crore every week to liquidate around Rs 1,500 crore in the next five months. Lenders led by Punjab National Bank have agreed to facilitate the restructuring of the plant. The company would also be allowed to sell balance power to other states. "This is a welcome step that will help ITPCL scale up its power generation to maximum capacity and take care of its short-term fund requirements. The company has also been facing severe challenges in restructuring its loans, pending receivables by Tangedco and PTC to the tune of around Rs 4,000 crore. These payments will also support the new board in its restructuring efforts of ITPCL," said IL&FS spokesperson Sharad Goel.
The Union Power ministry's diktat to imported coal-based (ICB) power plants to run at full capacity will force them to ask for fresh credit lines. These plants are facing severe financial crunch, with some of them even starved of working capital. An IL&FS executive said the firm doesn't have the funds to import coal. "If the banks issue a letter of credit to us, or the Rs 4,200-crore receivables from Tamil Nadu discom are made fungible to be used for coal imports, we will be able to operate the plant at full capacity," the source said.
Ravi Parthasarathy, who pioneered private in¬vestment in core projects through the failed Infrastructure Leasing & Financial Services (IL&FS), passed away on Wednesday following a prolonged illness. He had cancer and underwent treatment for the past few years after stepping down as chairman in 2018. The IL&FS default crisis had broken out months after he stepped down, with the first cracks appearing in July 2018.
When the crisis at IL&FS (Infrastructure Leasing & Financial Services) exploded in September 2018, many saw it as India's Lehman Brothers moment, when the US investment banking firm collapsed ahead of the 2008 global financial crisis. The concern was that the fall of one of India's biggest financiers of infrastructure projects in the NBFC (non-banking financial company) space would trigger a spate of such crashes and loan defaults, sending lakhs of crores of rupees of public money down the drain and leading to thousands of job losses. IL&FS had amassed a debt of Rs 99,355 crore—nearly as much as the Centre's allocation to states to build infrastructure projects this fiscal—the bulk of it borrowed from public sector banks, and was in no position to repay it. The company closed the 2017-18 financial year with revenues of Rs 18,799 crore on a consolidated basis, and a loss of Rs 1,886.85 crore. In a swift action akin to the one taken in the January 2009 'Satyam Scam', the Centre in October 2018 replaced the entire IL&FS board with a new, six-member board, and made Uday Kotak, managing director & CEO of Kotak Mahindra Bank, its non-executive chairman. On April 2, as Kotak's term at IL&FS ended and he passed on the baton to the current chairman & managing director C.S. Rajan, the company claimed it had resolved Rs 55,000 crore of its total outstanding debt, with Rs 21,000 crore already out of its books. With this, Kotak and his team met 90 per cent of the target they had set: a realistic Rs 61,000 crore of the outstanding debt.
Stakeholders in Corporate insolvency resolution would do well to heed the advice veteran banker Uday Kotak had to offer as his tenure as the non-executive chairman of IL&FS ended last week. After the collapse of IL&FS in 2018, Kotak assumed charge and oversaw the resolution of over Rs 61,000 crore of the group's overall debt of Rs 94,000 crore. A part of this is either awaiting distribution or is pending recovery as there are ongoing legal challenges. Compared to the average recovery of 33% (as of December 2021) of creditors' claims under the Insolvency and Bankruptcy Code (IBC) regime, the IL&FS recovery record is outstanding, specially because of the complicated task involving various layers and legal entities. Some experts argue the IBC shouldn't be judged by recovery score alone as the law is merely a facilitator of reorganisation that is ultimately determined by market forces. But Kotak's advice should be taken seriously for better recoveries and even prevention of corporate stress.
In 2018, the collapse of IL&FS had triggered a panic in financial markets. With liquidity drying up, non-banking financial companies (NBFCs), in particular, came under acute financial stress. Subsequently, the government constituted a new board, with Uday Kotak appointed as non-executive chairman, to manage the affairs of the beleaguered infrastructure behemoth. Now, almost three and a half years later, the process has successfully addressed the resolution of Rs 55,000 crore of the group's debt. Resolution of another Rs 6,000 crore of debt is expected to be finalised in the coming financial year. Considering that the group's total debt was just shy of Rs 1 lakh crore, this translates to a recovery rate that is higher than that observed under the IBC — at the end of December2021, under IBC proceedings, financial creditors had realised only 33 per cent of their claims in cases where a resolution plan had been approved.
On April 2, the troubled Infrastructure Leasing and Financial Services Limited (IL&FS) will see a major transition of power. After more than three years, the government appointed non-executive chairman, banker Mr Uday Kotak, will exit his role. His replacement, as chosen by the Union ministry of corporate affairs, is former officer of the Indian Administrative Service C S Rajan, who has been managing director of the group since April 2019. Mr Rajan's last post in government was as chief secretary of Rajasthan, and he retired in 2016 after which he served on the state chief minister's advisory council. The handover of power is the appropriate time to assess how the recovery efforts for IL&FS have progressed, and what the lessons of this unfortunate episode might be.
Uday Kotak will step down as chairman of IL&FS after three and a half years with current MD C S Rajan taking over as CMD. According to Kotak, around Rs 55,000 crore of debt has been resolved, which represents nearly 90% of the expected resolution. Kotak also announced the sale of IL&FS's iconic headquarters to Canadian private equity investor Brookfield for Rs 1,080 crore. He estimated the realisation at 62% of the total debt of Rs 99,000 crore.