Power projects amounting to 46,000 MW are facing viability issues due to lack of long-term buyers for electricity, inadequate fuel supply, and aggressive bidding to win projects and coal blocks.
Global Rating agency Crisil has postulated on Tuesday that 46,000 MW of power projects are facing viability issues which will put Rs 75,000 crore loans at risk, if not sorted soon.
Lack of long-term buyers, inadequate fuel supply, and aggressive bidding to win projects and coal blocks are major reasons that need to be reversed to stave off the issues.
Moreover, 36,000 MW out of the total power are coal-based projects within which tariff under-recovery has impacted 20,000 MW of capacities. The rest reels because of inadequate feedstock and poor electricity offtake by distribution companies(discoms), and around 10,000 MW of gas-based projects have become unviable due to diminishing fuel supplies from the Krishna-Godavari basin.
Pawan Agrawal, Chief Analytical Officer, Crisil Ratings said in the agency's press release,“Total loans to these stressed generation projects are currently about Rs 2.1 lakh crore. About Rs 35,000 crore, is for projects which have the cushion of a strong parent. Additionally, projects with loans of Rs 1 lakh crore could become viable if their payment profiles can be structured appropriately. This leaves the remaining Rs 75,000 crore of loans at risk.”
It does not stop here, another Rs 1.9 lakh crore of debt is owed by discoms. On the basis of financial restructuring package (FRP) announced in 2012, the moratorium on principal repayment ends in the current and next fiscal. These discoms are weak and has been supported by the government till date, and continuation of this support is a necessity but the situation looks downside for them.
Also, discoms have been facing liquidity pressure as they did not follow measures fully to keep the financial discipline and commercial trajectory on the track. This led to liquidity pressure which is supposed to continue until there are appropriate tariff hikes and significant reduction in losses.
Sudip Sural, Senior Director, Crisil Ratings said, “Annual tariff hikes of 10% over the next three years and a reduction of at least 200 basis points aggregate technical and commercial losses are necessary for discoms to break even in the medium term. As for sector health, improving agricultural metring and feeder separation, timely tariff filings and financial reporting, focus on power purchase cost optimisation through accurate demand estimation, and signing more power purchase agreements are necessary.”
Earlier in 2015, the Ministry of Power did the transparent reverse e-auction for stranded gas-based plants to revive the cumulative gas-based generation capacity of over 10,000 Megawatt of electricity. The government also promised financial assistance for the production of electricity under Power System Development Fund to the discoms.
However, these steps provide only limited relief and the plant load factor of capacities commissioned after fiscal 2009 will remain sub-optimal at 45%.
CSIRIL in its press release noted that Central Electricity Act's success depends entirely on implementation by state governments. And efficiencies would be induced by paving the path for privatisation through distribution franchisees and evolving the open-access mechanism. Central Electricity Act includes provisions on timely tariff filing and pass-through of fuel and power purchase cost.
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