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Gas shortage may lead to bank defaults

business Updated: Nov 28, 2013 21:16 IST
public and private sector banks

Worried over a possible default running into billions of dollars for public and private sector banks, the finance ministry has sought a special meeting of the Empowered Group of Ministers (EGoM) to look into gas supply to stranded projects, in a bid to save the accounts from turning into bad loans in the books of banks.

“Shortage of fuel to power plants could lead to huge problems and defaults, which is a cause for serious concern,” a senior finance ministry official said on the condition of anonymity.

“To prevent slipping of bank accounts into the non-performing asset (NPA) category, we have asked concerned ministries to place the status of allocation of required gas to projects before the EGoM.”

With such huge exposures stuck in the pipeline, banks have become wary of financing power projects.

A report by global consulting firm, KPMG titled “Re-charging the power sector” has cited lack of financing as a big concern for new projects in the power sector even as it stated that the 13th Five-Year Plan (2017-22) requires Rs 1.27 lakh crore of private sector equity and that the project pipeline looks weak.

One of the stranded projects include India’s largest gas-based power station — the 1,967-mw Dabhol power project in Maharashtra.

RGPPL — a joint venture between gas utility GAIL and the nation’s biggest electricity generator NTPC — is the operator of Dabhol power project and has been struggling to operate it due to gas supply shortages. RGPPL’s outstanding dues have ballooned to Rs 1,018 crore as on November 25, 2013.

Both ICICI Bank and State Bank of India have raised repeated alarms over a loan default by the Dabhol power plant, which has currently been rendered idle due to dwindling gas supplies. The finance ministry has also raised an alarm over loan default by the project. The EgoM is expected to meet shortly to take note of the gas supply issue.

A substantial reduction in gas supply from Reliance Industries Ltd’s (RIL’s) KG basin alone has left over 15,000 MW gas-based capacity stranded in the country including central, state as well as private plants.

There are 55 gas-based stations —14 (Andhra Pradesh), 12 (Gujarat), six (Tamil Nadu), five (Assam), four each in Delhi and Tripura, three each in Rajasthan and Maharashtra, two (Uttar Pradesh) and one each in Haryana and Puducherry. All four gas-based power stations in the national capital are not receiving gas from RIL .

As many as 10 power stations in Gujarat, seven in Andhra Pradesh are also stranded, the official said.