Mains Paper 3: Economy | Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
From UPSC perspective, the following things are important:
Prelims level: SAMADHAN, Pariwartan Schemes
Mains level: Read the attached story
Stressed Power Projects
- Stressed projects have drawn bids for around Rs 1-2 crore per MW under the insolvency and bankruptcy code, a fraction of the Rs 5 crore per MW needed to build them.
- Issues faced by the stressed projects include a paucity of funds, lack of power purchase agreements and fuel shortages.
Plan for PARIWARTAN
- The government plans to warehouse stressed power projects totaling 25,000 MW under an asset management firm to protect the value of the assets (Similar to SAMADHAN Scheme)
- This will prevent their distress sale under the insolvency and bankruptcy code until the demand for power picks up.
- State-run Rural Electrification Corp. Ltd (REC) has identified projects with a total debt of around Rs 1.8 trillion as part of the scheme, which is under government consideration
- It has been tentatively named Power Asset Revival through Warehousing and Rehabilitation, or ‘Pariwartan’.
- The ‘Pariwartan’ scheme is inspired by the Troubled Asset Relief Programme, or TARP, which was introduced in the US during the 2008 financial crisis.
- The proposed plan also aims to stem the rise in bad loans in the power sector.
- These stressed power projects will be housed under an asset management and rehabilitation company (AMRC) that will be owned by financial institutions.
- While the promoter’s equity will be reduced to facilitate a transfer of management control to the financial institutions, the lenders will convert their debt into equity.
- The AMRC will manage the projects and may ask utilities such as NTPC Ltd to operate and maintain them. The AMRC will charge a fee and help complete projects that are stranded for lack of funds.
- These projects will be transferred to the AMRC at net book value, wherein it will own a 51% stake in the projects and the balance 49% will be held by the lenders,” said the government official cited above.
Scheme of Asset Management and Debt Change Structure (SAMADHAN)
- Under Samadhan, the bankers’ consortium shortlisted 11 power plants with an overall capacity of over 12 gigawatts, which are either complete or nearing completion.
- The debt order will be reduced to a manageable level and converted into equities which are held by banks.
- That equity would be bid out to any players who want to buy those assets.