Power project developers may default on loans

The ministry of power has pressed the panic button as unavailability of coal from Coal India Ltd (CIL) is set to hit its capacity addition programme in the 11th and 12th plans. The ministry has indicated a possibility of default in the repayment of loans by the project developers in 2011-12 and 2012-13.

“CIL is not signing any fuel supply agreements (FSA) for the last two years. This has lead to uncertainty of fuel availability for the power plants. The power developers are unlikely to start their plants in the absence of fuel security,” said a power ministry official.

According to the power ministry, outstanding loans to the power sector stand at Rs4.5 lakh crore of which Rs2.5 lakh crore was provided by banks and the rest came from non-banking financial companies.

“Delay in signing of FSAs by CIL for the projects commissioned in 2009-10 and 2010-11 has already dented the confidence of bankers and investors. There is a distinct possibility of default in payment by some developers,” a  power ministry presentation said.

In the last two years, 33 thermal power projects have been commissioned for which no FSA has been signed between CIL and the developers. While CIL is supplying coal to these plants, in the absence of FSA it is not bound to maintain a minimum supply throughout the year.

In the long-term scenario, the power ministry has projected a sharp decline in coal supply from CIL for the power plants that are totally dependent on coal linkages from the PSU. While the additional demand for coal by 2016-17 is estimated to be around 320 million tonne, CIL has indicated that it may not be able to provide more than 100 million tonne. The government is left with an un-bridged demand of 220 million tonne for its power plants.

This may lead to underutilisation capacity of the upcoming power plants.

Though the power ministry had planned to add 78,000 mw of capacity in the ongoing plan period (2007-2012) it has revised its target to 64,000 mw at the commissioning level. The unavailability of fuel may force the government to revise its target further.