Tata, Adani, Essar may face huge write-downs

After the Gujarat-based power plants incurred hefty losses, the Adani, Tata and Essar groups are looking at huge write-downs. The lenders fear that the next wave of non-performing assets will come from the power sector as many projects became unprofitable after Indonesia amended its law that made coal imports expensive for these companies.

Tata Power’s Mundra project, under the special purpose vehicle Coastal Gujarat Power, constitutes almost Rs. 18,000 crore of its capital employed with negative returns till date. Adani Power’s net worth is Rs. 3,000 crore and has almost Rs. 49,230 crore of debt on its books. The unlisted Essar Power had also invested Rs 2,600 crore in the equity of the Salaiya plant and had Rs 5,000 crore of debt.

Tata Power has been struggling with the Mundra project and has informed the stock exchange that, in consultation with lenders, it had made various suggestions, including a possible acquisition of a majority stake by the power procurers.

According to the Sydney-based Institute for Energy Economics and Financial Analysis (IEEFA), Adani Power will have to take a $1 billion (Rs 6,500 crore) write-down for Mundra on top of the $954 million net loss it reported in 2016-17. The Adani Power board on June 6 approved the 'slump sale' of the Mundra power project into a separate company so as to sell the company's stakes to the government-owned distribution companies.

Essar Power, which runs a 1,200 MW plant, wrote to lenders stating that it would not be able to service its debt as its fuel cost had climbed above its selling price. The account has not become a non-performing asset yet, but it would not be able to pay its dues to banks in the coming quarters, Essar Power told lenders in May.

The IIEFA said the coal-fired power sector in India was under extreme pressure, given the government’s policy drive to diversify the electricity grid into a less emissions-intensive generation combined with the rapid deflation in renewable energy. The fall in solar tariffs in India would further push these coal-based power projects to stranded status, the IIEFA said.