The absence of a legal framework in dealing with PPP contracts is resulting in a lot of stress in the infra sector
The Supreme Court has before it petitions moved by many private thermal power companies against the Reserve Bank of India’s direction to banks to initiate insolvency proceedings against loan defaulters.
The power companies argue that their under performance is due to systemic issues; whereas the RBI’s argument is that the banking regulator cannot discriminate between sectors when dealing with loan defaults.
There is no easy solution. The 40th Standing Committee on Energy estimated that loans to two- thirds of the country’s coal-based power capacity are under stress. Banks are hesitant to take any further risk on the thermal power sector. Yet insolvency may result in the power companies being sold off piece by piece, leading to recovery of a fraction of the crores of rupees poured into them. Long-term ramifications for the country’s power-generation capacity and investor confidence in the sector are obvious.
