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Scarcities take away power sector’s shine: 2011 Review

With a forgettable 12 months coming to a close, what remains are hopes of “reforms and restructuring” in the power sector in 2012

New Delhi: Saddled with shortages, the power sector lost its promised sheen this year as fuel scarcity, regulatory inefficiency and funds paucity ushered in developmental gloom, reports PTI.

With a forgettable 12 months coming to a close, what remains are hopes of “reforms and restructuring” in the power sector in 2012.

From delays in the flagship Mundra Ultra Mega Power Project (UMPP) and other projects to bleeding power distribution companies (discoms) hurting lenders, a persisting uncertainty has also hurt investment flows into the sector.

Besides fuel shortages, political and business sensitivity on the issue of tariff hikes as well as the proposal to impose duty on imported power equipment, especially from China, contributed to the uncertainty.

Nevertheless, 2011 began on a relatively positive note, with Power Finance Corporation’s stake sale mopping up over Rs1,145 crore. But then, a raft of negative news began to trickle in, including pricey fuel posing the proposition of a Rs500 crore annual loss for the Mundra UMPP in the first year of operations.

Discoms presented a dismal picture, with projected losses of Rs70,000 crore last fiscal. The high-level Shunglu Committee has come out with a slew of suggestions to absorb their losses, such as creation of a Special Purpose Vehicle (SPV).

All these factors have hurt overall investment flows into the power sector, especially in the second half of 2011, according to experts.

“This was the year when all the risks, mainly coal shortages, surfaced, affecting many projects. There were regulatory, policy and investment hurdles, among others. The power sector seems to have almost hit the bottom in 2011,” Salil Garg, director of ratings agency Fitch’s Asia-Pacific Utilities team, told PTI.

“Next year, we expect to see restructuring and reforms happening in the power sector, he added.

Eyeing 9% economic growth, the country is well short of meeting its power capacity addition plans. The target of 17,601MW for the current fiscal, ending March next year, is unlikely to be achieved, thanks to slippages and shortages.

Depending mostly on thermal plants for energy, inadequate availability of coal has been a recurring theme in the Indian power sector. The problem has been accentuated by environmental hurdles and soaring international fuel prices.

The poor financial health of the discoms also set off alarm bells in the banking sector, with reports suggesting that many financial institutions have become extremely cautious in lending to the power sector.

Official data revealed that public sector banks had extended loans of more than Rs2.97 lakh crore to the power sector at the end of September quarter.

Estimates showed that the losses of power entities in Rajasthan, Tamil Nadu, Madhya Pradesh, Uttar Pradesh and Bihar alone accounted for over 70% of the overall loss incurred by state power utilities in the 2010 financial year.

While the delays and financial headaches play out, a tussle is intensifying between the government and private power producers over the proposal to slap a 14% duty on imported equipment.

As the 14-member Association of Power Producers put it, “The power sector in the country is passing through a very challenging phase with significant headwinds...”

Entering 2012, there are hopes that the sector sees less turbulent times.
 

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