State-run power generation behemoth NTPC is preparing to bid for the 600-MW Jhabua power plant, which is facing insolvency proceedings, a top company official said. This is the first instance where the company is showing interest in brownfield expansion through stressed assets.
As reported by sources earlier, the power ministry has asked NTPC to bid for potentially viable projects that are being resolved under the Insolvency and Bankruptcy Code (IBC) and acquire them if valuations of the stressed assets are attractive. According to sources, Power Finance Corporation, Rural Electrification Corporation, SBI, Union Bank of India and Axis Bank were the main lenders, with each of them having exposure of more than `3,000 crore in the project.
The stressed power plant, located in the Seoni district of Madhya Pradesh, was developed by Jhabua Power Ltd, a special purpose vehicle promoted by Avantha group. Another 660 MW is currently under implementation. Issues related to land acquisition led to significant delays in project implementation, and woes of the plant got compounded by the lack of adequate power purchase agreements (PPAs). The plant has a coal linkage for 2.5 million tonne (MT) annually with Coal India. It has also inked PPAs for a total of 340 MW capacity with Kerala and Madhya Pradesh.
The development comes at a time when major power conglomerates are cash-strapped and power plants are finding it difficult to find new takers. In an earlier interview with sources, Union power minister RK Singh had said that it was difficult for NTPC to bid for projects outside NCLT. “The valuations discovered in the tribunal are absolutely transparent whereas that may not be the case elsewhere.”
In a first instance of a state-run company acquiring a stressed asset under the IBC, NHPC in September signed an agreement to take over and implement the 500-MW Teesta-6 hydro electric project in Sikkim.
It is reliably learnt that NTPC might not prioritise the availability of PPAs while bidding for stressed assets in NCLT — a business policy which the company would be resorting to for the first time. A senior company official told sources that the firm would be looking for operational parameters such as availability of water supply, rail connectivity and transmission infrastructure to assess if they are fit for takeover. “Another important issue would be easy availability of spare-parts which is related to the equipment manufacturers and suppliers to the project,” the person added.
In the wake of expected surge in power demand, NTPC would try to sign PPAs with the states for the newly acquired plants. It is also keeping the option of selling electricity in the spot markets — a business policy which the company is resorting to for the first time. Currently, all 41 gigawatt (GW) of NTPC’s operational and 12 GW of under-construction coal-based stations are tied up with assured power offtake agreements. In fact, PPAs for about 73% of the under-construction capacity were signed before 2011.