MoF seeks coal for power plants to check bad loans

NEW DELHI: The finance ministry has asked the coal ministry to prioritise supplies to power projects that are stuck due to unavailability of coal to ensure that loans to such projects do not become non-performing assets.

The move comes at a time when projects worth around Rs 5.39 lakh crore are stuck in the power sector.

The finance ministry believes that any delay in coal supply will have a detrimental impact on some of the projects and could lead to further increase in banks' NPA or bad loans. "It is going to be a vicious circle as banks will not be in a position to lend to new projects even if they have proper fuel supply agreements," a finance ministry official said.

Gross non-performing assets of public sector banks have increased from Rs 71,080 crore in March 2011 to Rs 1.55 lakh crore in December 2012.

The finance ministry was responding to the inter-ministerial discussions on the proposed coal pooled pricing mechanism, which seeks to address the concern of coal shortage in the country.

The ministry has further recommended that increase in coal prices should have complete pass through. "The coal and power ministry should examine the feasibility and extent of such increase in prices," the official said.

Earlier this month, the finance ministry had directed all PSBs to give information regarding loan sanctioned or disbursed to power plants without any fuel supply agreement .

An executive director with a state-run bank said that lenders had assessed the projects on the basis of letter of assurance (LoA), but in the current situation where Coal India will only provide 65% of coal as agreed in the LoA to projects commissioned after March 2009, the project costs have increased.