Lenders nominate a resolution professional to administer under stress Essar's Mahan project

NEW DELHI: Lenders to Essar Power Mahan have nominated a resolution professional (RP) to manage the company's affairs and are likely to approach the National Company Law Tribunal (NCLT) to kickstart insolvency proceedings against the thermal power producer, according to sources in the know.
The lenders that include ICICI Bank and Punjab National Bank have picked Jet Airways' current administrator Ashish Chhawchharia to manage the affairs of the Essar power plants located in the Singrauli district of Madhya Pradesh, sources said. Essar Power Mahan has power supply contracts with Essar Steel.

Though ICICI Bank had filed an application to initiate insolvency against the company almost two years ago, the application is yet to be admitted by the NCLT.

"Essar Power Mahan has proposed a fair time bound debt resolution plan to its lenders. The project is one among many power projects being considered by the lenders for restructuring," an Essar spokesperson said in response to ET's queries.

The spokesperson noted that Essar Group has been actively reducing its debt.

“Essar Power has demonstrated its commitment to overall group debt deleveraging by reducing its debt by Rs 1,48,000 crore in the last three years. We remain hopeful that the lenders will be able to arrive at a considered view for the entire industry,” he said

However, banking sources suggested that Essar Power Mahan's promoters, the Ruia family, had not put up any concrete proposal for restructuring so far despite multiple assurances and that the insolvency plan had to be put into motion. Essar Power Mahan owes banks Rs 5,500 crore. Even Arcelor Mittal, which acquired Essar's steel business through the bankruptcy process, twice attempted to take over the plant through negotiations with the lenders because of the proximity of the two power plants to the steel manufacturing plants of Essar Steel but remained unsuccessful.

The 1,200 MW independent power producer that was originally expected to incur Rs 717 crore as project cost faced several cost and time overruns right from construction phase. Essar's management maintained that the cancellation of coal mines assigned to the plant had severely affected its feasibility and led to cost escalations, forcing the company to double equity investment to Rs 3,300 crore to ensure the project is completed.