Indian Express reported that the collateral impact of the coal block de allocations could further weigh heavily on the banking sector.

Power Finance Corporation and Rural Electrification Corporation have significant exposure to a number of power projects where the associated mine is now under the scanner while public sector banks led by the State Bank of India are involved in syndicating the debt component of a number of others.

In nearly all cases, the loan was in the form of non-recourse funding, where the lender is only entitled to repayment from the profits of the project the loan is funding not from other assets of the borrower.

For instance, RKM Powergen, a special purpose vehicle floated by Chennai based R K Powergen and Malaysian firm Mudajaya Group Berhad to set up a 1440 MW coal fired power project in the Janjgir Champa district of Chhattisgarh is one such projects where the coal block is now under a cloud. In the first two phases PFC has an exposure of INR 2,000 crore and REC INR 1,420 crore.

The Fatehpur (East) block which was jointly allocated to RKM Powergen in January 2008 along with a consortium of companies that included JLD Yavatmal Energy, Vandana Vidyut, Visa Power and Green Infrastructure is now under the scanner for failure to achieve project milestones.

Vandana Vidhyut Limited another players that was jointly allocated the Fatehpur (East) block, only had the experience of operating 8 MW rice husk based bio mass power plant at Bilaspur, Chhattisgarh to its credentials. SBI is the lead banker in a consortium of mostly state owned lenders for the large debt funded capex programme for the proposed 540 MW coal fired project in Korba, Chhattisgarh that is being set up in close proximity of the block.

The financial closure of most of the projects happened prior to 2008, when short term power rates were hovering around INR 5 to INR 6 a unit. Most of these projects had access to either linkages or had access to coal blocks. The fact that the blocks could be cancelled was not envisaged at the time that the funding proposals were being vetted.

In case of SKS Power Generation’s 1,200 MW coal fired power project in Chhattisgarh, the project was underwritten and is being financed by the State Bank of India in consortium with a syndicate of domestic banks. In case of DB Power, the block is under the scanner for lack of progress. Here again, SBI was the lead banker to the project.

Meanwhile, the Chhattisgarh High Court’s verdict to annul the acquisition of farmland for KSK Mahanadi, SKS Ispat & Power Limited Visa Power and Moser Baer has dealt a further blow to banks and institutions.

Source - Indian Express.com

(www.coalguru.com)