Resolution of Rs 1 lakh crore of stressed power debt feasible with haircut

A 40-60% haircut, along with financial safeguards, can resolve as much as Rs 1 lakh crore of debt stuck in coal-based power projects and enhance their viability on a sustained basis. Lower debt and the consequent reduction in the cost of electricity generation will make these capacities attractive to new power purchase agreements (PPAs). The analysis is based on CRISIL’s assessment of 16,000 MW power assets, which account for nearly two-thirds of stressed and operational coal-based capacities. Thermal coal-based power capacities have been in stress for multiple reasons. These include over-leverage due to costs over-runs, inadequate PPA and fuel supply agreements, and aggressive bids. While structural issues such as PPAs and fuel supply agreements may continue, debt haircuts can potentially improve cost of generation for these plants.