September 6, 2018: A new report has criticised the Parliamentary Standing Committee on Energy for failing to fix responsibility on who should have been held accountable for the current NPA crisis in the power sector.
The report, titled A Missed Opportunity: A Critique of ‘Stressed/Non-Performing Assets in Electricity Sector’ by the Parliamentary Standing Committee on Energy (March-2018), released earlier this week by the Center for Financial Accountability, New Delhi, argued that while the Committee identified a range of reasons for the growing NPAs — from shortage of fuel supply to lack of sufficient Power Purchase Agreements (PPA) by states to delay in implementation of projects resulting in cost overrun — the Committee fell short of providing any concrete solutions to redress the NPA crisis in the power sector. The CFA’s critique emphasised that most of the Committee’s recommendations were vague.
It is noteworthy that it was the first time that a Parliamentary Standing Committee has investigated the NPAs in power sector, in which the stressed assets constitute around 17.67% (98,799 crores) of the total advances. This inquiry was done in the wake of multiple news reports that highlighted the stress in power sector and piling up of NPAs, which adversely impacted the banking sector, especially the Public Sector Banks (PSBs).
The Critique slammed the Parliamentary Standing Committee for its non-critical approach towards the failure of the banks or creditors to recover loans from defaulters. Advocating to make the lending processes of financial institutions transparent, the Critique argued that it would prevent the squandering away of the public money by the promoters in the name of executing projects.
The Critique also pointed out that the Committee’s report is silent on the de-licensing of power generation companies, which resulted in the haphazard growth of power plants in the country, eventually leading to many amongst them turning as stressed assets. Emphasising on the unrealistic over projection of the demand for power in the country, has mainly contributed to a surge in the number of stressed assets in the power sector, the Critique urged that the Committee take in to account the falling tariffs of renewable energy sources while reiterating its commitment to the Paris Agreement of 2015 to which India is a signatory.
The Critique, which was written from the people’s perspective, observed “the Parliamentary Committee emphasized more on the market-oriented solutions, such as taking steps for boosting the demand for power, for dealing with the problem of stressed assets. However, it has not at all touched upon the role of the welfare state in addressing the energy inequity, which deprives millions of people the access to electricity.”
Joe Athialy, Executive Director, CFA, said, “The Standing Committee had a chance to get to the bottom of the NPA crisis in the power sector, recommend actions for course correction, fix responsibility and radically change the pattern in which power projects are approved and financed without looking at the fundamentals. Unfortunately, it failed to do so and it remains as a document where the diagnosis and prescription both turned out to be wrong.”
Rajesh, CFA, one of the co-authors of the report said, “It is quite surprising that the Parliamentary Standing Committee did not see a problem with the de-licensing approach in power sector, brought by the Electricity Act, 2003. One of the biggest reasons for the current stress in the power sector stems from the fact that dozens of private companies with no prior experience in this sector had tried to be part of the mad rush for grabbing a pie in power generation, which has eventually resulted in power plants lying idle due to absence of PPAs and poor demand for power.”
Nishank, CFA, another co-author of the report said, “When a body of the stature of Parliamentary Standing Committee takes a matter in its own hands to come up with recommendations to address the problems facing the power sector, it is naturally expected that the Committee would come out with some strong and concrete solutions, which would help in addressing the crisis. However, after going through the entire report, the lack of any tangible recommendations turns out to be an acute disappointment. The Committee could have been more critical in its approach.”