We all know of the killing impacts of coal based power plants – from the massive air pollution, from water contamination and from the dirty coal mines. As per the “State of Global Air 2017” report, there were over 4.2 million premature deaths in 2015, from exposure to long term air pollution alone, along with a loss of around 103 million years of healthy life, mostly from exposure to PM2.5. India and China accounted for over 52% of this number, with India alone accounting for over one million of these premature deaths. Off late, attention in major Indian cities have started to be generated on this not-so-invisible-killer, but the mushrooming coal power projects in India are causing another serious “health problem”, that of the banking sector. This new “disease” is also becoming of epidemic proportions, but much less attention has been focussed on this, which has a potential to seriously strike the entire banking sector, which might have multiplier effects on a very large part of the population.
India today have a total installed power (electricity) plant capacity of over 330,000 MW, out of which coal based power plants account for about 195,000 MW or 59% of the total. The generation from coal power plants contributes even more. As a result of this, Indian coal power plants burned an annual 546 million tons of coal in 2015-16 (out of a total of about 880 million tons), causing massive air and water contamination, leading to the severe health impacts – with the second highest number of deaths and diseases due to air pollution, and we all are rightly concerned. As per reports of the Ministry of Power, India is expected to be power surplus in 2017-18, by about 8%, and the existing coal plants are running at less than 60% plant load factor (PLF or Capacity Utilisation Factor). Yet the rush of new coal power projects has not stopped – only slowed down a bit.
And each and every new coal power project needs financing – money in plain-speak, a lot of money (at about a million US dollars per MW installed), and most of that money comes from the public financial institutions. Even for the privately owned power plants/projects, the major financing is from these public financial institutions. Therein lies the other killing impact. Demand for power is down or not increasing as per projections. Financial returns from many existing plants are also down, as most regional grids are surplus, leading to low sales realisation. Under corporate pressure, several state governments have resorted to even keeping the public sector power plants shut, while buying power from private generators (as in Madhya Pradesh) – often tweaking the PPAs (Power Purchase Agreements) to facilitate this. On top of that, several private power projects inflated their costs by fraudulent means like over-invoicing of both equipment and coal imports (as in the case of the 4620 MW Adani Mundra power plant), leading to higher debt and debt servicing obligations. The clear and inevitable result is the default, willful or otherwise is a matter of further debate and investigation.
Talking about energy finance, stressed assets of Indian Banks are on the increase, from INR 12 lakh crore (one lakh-crore is equal to one trillion) to INR 14 lakh crore (INR 14 trillion or USD 217 billion) from revised estimates. Until now, the steel sector in India had the highest contribution to stressed and stranded assets. However, the power sector is fast catching up (or falling down the hole?), but the stressed assets of the power sector are still not given the sharp attention it needs. There are a total of 35,900 MW of thermal and hydro power projects that are on the verge of becoming stressed assets, with payments defaulted at some point. This is resulting in bad loans or NPAs (Non-Performing Assets) in this sector, and damaging the entire banking sector. Around 17 under-construction coal-based thermal power projects with a capacity of 18420 MW have been stalled due to financial issues while another 17 gas thermal power projects with the capacity of 11,154 MW are stressed according to the government data by the end of February 2017. Over 25,000 MW of troubled coal power projects have been put on the block, but there are hardly any buyers. Even hydro power projects have the same story. A total of 20 hydroelectric projects with the capacity of 6,329 MW are struggling due to financial issues. The government is pushing a proposal to bail them out with nearly INR 16,000 crore (INR 160 billion). The consequences of this situation are that the stressed assets of private coal power companies are becoming stressed assets for the banking institutions (mostly in the public sector), who are eventually being bailed out by the government through further infusion of public money, to ensure compliance with Basel-III norms (for the Bank’s capital adequacy, stress testing and market liquidity risks). These are multiple attacks on India’s 1.3 billion people’s savings and tax (direct and indirect) money, including the poorest.
Also, one of the first UMPP (Ultra Mega Power Plant) – Coastal Gujarat Power Limited (CGPL) owned by TATA Power is incurring massive losses every quarter and is ready to sell its 51% stake for an unbelievable token sum of INR1. Similarly, Adani’s Mundra power project also approached The Gujarat Urja Vikas Nigam Limited (GUVNL) for bail out. Both projects are financially not viable because the Supreme Court nullified the plea for compensatory tariff due to price rise of imported coal. The trend of the government bailing out private companies with public money is on the increase. Financial non-viability of these two projects has raised questions on the banking system and its due diligence processes before providing a loan. There is a case against the builders in of both these projects in Supreme Court for fraudulently over-invoicing equipment and coal imports.
Corporations are not only robbing the public of their money but also ignoring the social and environmental impacts of these projects. Before providing loans, financial institutions are neither doing the due diligence process properly nor do they adhere to most of the mandatory social and environmental requirements after they receive loans. The large coal and hydro projects apart from causing massive displacement also hugely impact the livelihood of people who in most cases are farmers, artisans, landless workers. These projects also adversely impact environment causing serious health concerns for people and destruction of ecology. The fulfilment of the exploding energy needs of urban India is coming at the cost of land and livelihoods of numerous rural communities.
Now the dangerously growing stressed/stranded assets of public banks and financial institutions are threatening a far larger number of common citizens of India – it is their hard-earned money, life-long savings which are being frittered away in building and running unnecessary, surplus, polluting coal power plants. The public sector banks have written off huge amounts of NPAs, over INR 225,180 crores (INR 2251 billion) in the last five years, to get these NPAs off their books, under pressure from the Reserve Bank of India (India’s Central Bank). NPAs have touched nearly 9% of their total lending, a figure close to that of economy-in-trouble Russia! To compensate for these NPAs and the massive loan write-offs, the banking sector has reduced the interest rates on people’s savings, introduced various arbitrary charges – going to the extent of charging customers even to withdraw their own deposits! Thus the unnecessary coal power plants have extended their killing tentacles far beyond the 20-25 kilo-meter pollution impact zones, spreading their killing fields nation wide.
Dutta works at Beyond Copenhagen Collective and Kumar at the Centre for Financial Accountability