Financially crippled power companies cannot be revived or resolved under the provisions of the existing bankruptcy laws, but asset reconstruction companies can better deal with them, a senior government official said Friday.
Crucial agreements on the power purchase and fuel supply come apart if an asset goes for bankruptcy by sending it to NCLT as required under the law now, leaving only the plant and machinery, Union power secretary SC Garg said.
The power sector is one of the worst performing from an asset quality perspective for banks and Garg pegged the overall stressed portfolio at around Rs 4 trillion or over 65,000 mw of generation capacity.
“Not every kind of industry or every kind of asset can be best reconstructed through the IBC,” Garg told an event on ARCs organised by industry lobby Assocham.
If a power sector asset goes to NCLT, “practically nothing will survive, except the plant”, he said, adding PPAs and FSAs will come off. Any new buyer will lose interest asset because of this, he said, recommending the ARC route to resolving the stress in the sector.
He said the dozen-odd ARCs, which have been around for over a decade now, can collaborate with an industry expert, to help in resolution.
However, absence of strong homegrown power companies which can team up with financial investors to resolve an asset, is delaying the resolution process.
Meanwhile, Garg also pitched for an amendment in the powers of ARCs, underlining that they need to be empowered to act like an asset manager, much beyond the current limited role of being a debt manager.