Economic Survey 2013: Private power firms may face financing troubles

Private power generation firms may face project financing hurdles unless the issue of fuel supply is addressed, Economic Survey 2012-13 said on Wednesday.

"The private developers may not be able to finance the projects if coal linkages are not resolved and there are delays in finalisation of fuel supply agreements (FSAs)," said the survey, tabled in Parliament.

It noted that the delivery of capacity addition target of 88,000 MW in the 12th Plan period (2012-17) will critically depend on resolving fuel availability problems, especially when about half the generated capacity is expected to come from the private sector.

While some decisions have been taken for restructuring discoms' finances, these may need to be monitored and implemented in spirit.

The government in September approved the scheme for financial restructuring of state distribution companies.

Some of the salient features of the scheme include 50 per cent of the outstanding short-term liabilities up to 31 March 2012 to be taken over by state governments.

This shall be first converted into bonds to be issued by distribution companies to participating lenders, duly backed by state government guarantee.

And restructuring the balance 50 per cent short-term loan by rescheduling loans and providing moratorium on principal.

The survey observed that although India has large coal reserves, demand for coal is substantially outpacing its domestic availability, with Coal India not being able to meet production targets in the 11th Plan.

Domestic coal production was originally targeted to reach 680 mt (million tonnes) in the 11th Plan. This was scaled down to 630 mt in the mid-term appraisal, and only 554 mt was achieved.

Hence, it is essential to ensure that domestic production of coal increases from 540 million tonnes in 2011-12 to the target of 795 mt at the end of Plan.

Despite this increase there will be a need to import 185 mt coal in 2016-17, which may further add to the financing cost of power projects.

Meanwhile, during 11th Plan, nearly 55,000 MW of new generation capacity was created. Yet there continues to be a peak shortage of 9 per cent.

Peak power shortage is shortfall in generation capacity when electricity consumption is maximum.

The survey said the resources currently allocated to energy supply are not sufficient for narrowing the gap between energy needs and energy availability.

Electricity generation by power utilities during 2012-13 was targeted to go up by 6.05 per cent to 930 billion units. The growth in power generation during April to December last year was 4.55 per cent, as compared to about 9.33 per cent during April-December, 2011.

The capacity addition target for 2012-13 was set at 17,956 MW. A capacity of 9,854 MW has been added till December.