India Asks State-Run Power Firms To Take Benefit Of “Clean Slate” In Bankruptcy Law

The “clean slate” principle will safeguard power producers from liability on account of issues/claims of period earlier to admission under the CIRP
India Asks State-Run Power Firms To Take Benefit Of “Clean Slate” In Bankruptcy Law
Source: NTPC

India’s power ministry has nudged state-owned power companies to take advantage of the “clean slate” principle embedded in the country’s bankruptcy law to acquire the stressed power assets.

The enactment of Insolvency & Bankruptcy Code (IBC) has provided a significant push to the revival of stalled thermal power assets to the benefit of all stakeholders, including power producers, end consumers and creditors, the Ministry of Power said in an advisory to the state-run power generating companies.

The central public sector undertakings (PSUs) such as NTPC Ltd., NHPC Ltd., SJVN Ltd., Power Finance Corporation Ltd., and REC Ltd. have been successfully involved in resolving various stressed power assets under the IBC either through direct participation in the corporate insolvency resolution process (CIRP) as a resolution applicant or by way of lenders' backed resolution plan, it added.

The power ministry said the participation of central PSUs have ensured that significant public investments and national resources stuck in stressed power assets are resolved and revived, providing much required capacity addition with definite cost and time savings in comparison to a greenfield investment.

This has enabled availability of power at competitive prices to the end-consumers from stalled power project, which would have otherwise been lost/scrapped due to devaluation/liquidation, it noted.

Nudge To State-Run Firms

The government said the stressed projects mainly face challenges like inadequate capital investment, shortage/disruption in coal supply and fuel supply agreement issues, inadequate working capital funding and prolonged recovery of receivables under power purchase agreements.

The participation of power generating companies would ensure that such issues are addressed, thereby expediting revival of these assets, it added.

The ministry said the power producers’ operational and implementation expertise would also help in reducing turnaround time and bringing these stressed assets to operation stage quickly in partnership with other concerned government agencies.

In addition, this would help the states to meet their increasing power demand economically with significant control on such power generated, it noted.

To continue the central PSUs endeavor, the government requested the state-owned power generating companies to participate in the CIRP of stressed power assets, which are of strategic and commercial significance to the capacity addition plans of the concerned states.

Enticing With “Clean Slate” Principle

The power ministry said that benefit of taking National Company Law Tribunal (NCLT) route is that “clean slate” principle is embedded in the IBC and this would safeguard the power producers from any unexpected liability on account of issues/claims of period earlier to admission under the CIRP.

The approved resolution plan is binding on all the stakeholders involved, including statutory claimants, it added.

“Only the claims included in the resolution plan, approved by the committee of creditors (CoC) and the adjudicating authority (i.e. NCLT) would be entertained and all the other creditors’ claims would stand extinguished, which thus provides a ‘clean slate' to the acquirer,” the government said.

Such reliefs are not available in case of resolution/acquisition outside the IBC, it emphasized.

Therefore, the state-owned power producers should acquire the stressed power assets through IBC under the NCLT route and contribute to the overall generation capacity of the nation, the ministry said.

Stressed Power Projects

The government said the stressed power projects of companies such as RattanIndia Power Ltd., Coastal Energen Private Ltd., KSK Mahanadi Power Company Ltd. with a total capacity of 6,550 megawatts are ready for takeover.

The Insolvency & Bankruptcy Board of India’s (IBBI) latest quarterly report showed that a total of 7,058 CIRP cases were admitted by the end of September 2023 since the provisions of IBC became effective on 1 December 2016.

The electricity sector had a share of 3% in the admission list of CIRPs, the report showed.

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