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    Home»Insight»India’s Dim Power Sector
    Insight

    India’s Dim Power Sector

    Kanupriya SheopuriBy Kanupriya Sheopuri28 NovemberNo Comments4 Mins Read
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    India’s power sector – which comprises of private and public power generating companies, is in distress. The national grid is not operating at its full potential, with a Plant Load Factor (PLF) of 60.55% (as of August 2018). As per the 37th report of the Parliamentary Standing Committee on Energy, the value of bad assets stands at ₹1.74 trillion.

    Lenders are giving up on the sector due to mounting uncertainty and risk of liquidation. Banks may even drag the distressed companies to the National Company Law Tribunal for failing to settle outstanding liabilities with one-time settlements. The promoters’ ability to infuse equity and working capital has deteriorated and slowed capacity addition, thereby dragging the sector into financial turmoil. Moreover, the ones who want to increase capacity are more likely to purchase bankrupt assets that are available at lower valuations.

    The capacity of stressed thermal power plants is 40,130 MW, but only 24,405 MW is commissioned while the rest is under construction. To add insult to injury, the capacity addition in the thermal power sector is expected to be only 35 gigawatts (GW) in FY19-23 as compared to 88 GW of capacity in the preceding five years.

    Also Read: How Many Gigafactories Do We Need To Power The Entire Planet?

    What took away the glow of the Indian Power Sector?

    The sector is plagued by weak demand, high input costs, low merchant rates and demand-supply mismatch in coal. NTPC, a Navratna company, highlighted coal shortage in 4 of its plants due to non-availability of railway rakes and logistic issues which in turn affected its coal procurement. The private sector is responsible for 32 out of the 34 stressed thermal power generating plants. The unavailability of Power Purchase Agreements (PPAs) with state-owned distribution companies and the cancellation of 214 illegal and arbitrary coal block allocations are the primary reasons for the shortage in coal supply.

    However, one cause of the power sector’s darkness dates back to the Electricity Act 2003 that opened a floodgate in a bid to promote the private sector. Most states trifurcated their state electricity board into  generation, transmission and distribution, welcomed the private sector and allowed delicensing for thermal power generation. This allowed private companies to set up a thermal power plant by merely conforming to the technical standards for grid connectivity. They received priority sector lending from the nationalised banks. Most banks went on a lending spree to encourage private companies for setting up power plants without fulfilling some pre-conditions like coal supply adequacy in some cases. As a result, it is not just the thermal power generating companies and discoms, but the PSBs too which are crippled with massive losses and high debt today. Disputes over tariff hauled projects and intensified the woes of the sector because, in a bid to win PPAs, companies quoted tariffs so low that it led to costs overrun.

    Rescue Plan

    As per RBI’s mandate, creditors to companies who have defaulted on loans worth ₹2,000 crore or more, as on 1 March 2018, will have to implement a Resolution Plan within 180 days or file for insolvency under the Insolvency and Bankruptcy Code (IBC) within 15 days from the expiry of the deadline of August 2018. Other measures being adopted are  government-run scheme ‘SHAKTI’ to improve coal supply, cost rationalisation, improvement in energy efficiency, reduction in transmission and distribution losses.

    The banks need to be prudent before lending for power projects and use the government’s credit rating system for risk appraisal. India is largely dependent on coal-based thermal energy for fulfilling its baseload power needs, so private sector can join hands with the public sector to build more capacities in the renewable energy space while working to increase the capacity utilisation of existing thermal power plants. This will also help reduce dependence on coal import and keep current account within reasonable limits.

    It is high time the sector streamlines and constructively works to ease the pain due to its stressed assets before it cripples the economy.

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    Kanupriya Sheopuri

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