Observing that power producers’ revenues are lower than that required to service their debt, the Economic Survey today said “there is scant sign on the horizon that plant load factors and tariffs might improve”.
“..cash flow for most private power generation companies falls far short of what is needed to service their interest obligations; put another way, more than 60 percent of the debt owed by the private power producers is with IC1 companies (interest coverage ratio less than 1). Also there is scant sign on the horizon that PLFs and tariffs might improve,” the survey said.
According to the document, the setbacks have led to cost overruns at the new private power plants of more than 50 per cent in nearly every case, and much more than that in many.
“To cover these costs, these companies need to sell all the power they are capable of producing at high tariff rates. But the opposite is happening,” it said.
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The survey stated that the plant load factors (PLFs, or the actual electricity production as a share of capacity) are exceptionally low, and they fell to just 59.6 per cent during April-December 2016 from 62 percent during the same period last year.
Meanwhile, merchant tariffs for electricity purchased in the spot market have slid to around Rs 2.5/kwh, far below the breakeven rate of Rs 4/kwh needed for most plants, let alone the Rs 8/kwh needed in some cases, it added.
As per the survey, the higher costs, lower revenues and greater financing costs all squeezed corporate cash flow, quickly leading to debt servicing problems.
By 2013, nearly one-third of corporate debt was owed by companies with an interest coverage ratio less than 1 (‘IC1 companies’), many of them in the infrastructure (especially power generation) and metals sectors.
By 2015, the share of IC1 companies reached nearly 40 per cent, as slowing growth in China caused international steel prices to collapse, causing nearly every Indian steel company to record large losses, it said.