India's largest lender, State Bank of India, has submitted details of the proposed power sector fund, which is likely to be set up with a corpus of Rs 50,000 crore for reviving stalled power projects in the country. It will also help recover thousands of crores worth of banking sector funds that are stuck in such projects.
According to the concept paper worked out by SBI, a copy of which is available with HT, the fund would have 49% contribution from power sector PSUs, with the balance coming from banks and foreign investors.
"The fund would provide equity support and undertake some debt restructuring," said the minutes of the October 17 meeting, quoting SBI chairperson Arundhati Bhattacharya.
The meeting was held at SBI's head office in New Delhi and attended by senior officials of the finance and power ministries, along with heads of banks and financial institutions including SBI, Punjab National Bank and India Infrastructure Finance Company Ltd, besides the Asso­ciation of Power Producers (APP), which represents the country's top power companies.
The proposal of the fund was first mooted in June soon after power and coal minister Piyush Goyal had taken charge and met the bankers on power sector issues. SBI was asked to work out the finer details.
"The government is looking at options by which it can become feasible for banks to fund long-term projects, which include power as well. At present, there are a few issues that concern banks and these need to be addressed for speedy financing decisions," a senior SBI official said.
Private sector companies have contributed significantly to the installed capacity in the power sector during 2007 to 2012, with their share rising to 67% by August 2014 from 55% in 2012.
State-run power sector financial institutions including Rural Electrification Corp, Power Finance Corp and cash-rich companies such as NTPC, along with various public and private sector banks, are likely to contribute to the corpus of the fund, officials with knowledge of the proceedings said.
"As much as 136,000 MW of capacity, out of India's total installed capacity of 254,000 MW, involving an investment of over Rs 6.23 lakh crore, has been added by the private sector," according to a presentation made by the APP during the October 17 meeting. "The capital charge on the investments (by the private sector) is about Rs 90,000 crore."
Fuel shortage, high coal import prices, a depreciating rupee, delays in land acquisition, transmission bottlenecks and poor financial health of distribution companies are some of the issues plaguing the power sector. Besides time and cost overruns, the projects are also facing funding constraints. This has resulted in higher non-performing assets (NPAs) - loans that do not yield returns - for banks, besides affecting economic growth and the overall investment climate.High cost of alternative fuels and the reluctance of discoms to procure power have resulted in substantial decline in revenues of power companies, leading to cash flow issues. The high construction risk is keeping away new investors and project developers are finding it difficult to manage long-term contractual obligations.