1. The stress matrix

The stress matrix

What can be done to address the woes of the power sector:

By: | Updated: August 3, 2015 12:44 AM

What can be done to address the woes of the power sector:

* Focus on augmenting domestic coal production: Domestic coal supplies to the power sector increased 10.7% in fiscal 2015, driven by speedier environmental clearances and land acquisition, leading to higher coal production. The government is also taking critical steps such as expediting the construction of three critical railway lines (Tori-Shivpuri-Kathotia in Jharkhand, Bhupdeopur-Korichhaapa to Mand Raigadh mines in Chhattisgarh and Barpali-Jharsuguda in Ib Valley, Odisha). Continued and concerted efforts in this regard are necessary to address fuel availability issues. Rake availability also needs to improve in line with increasing production.

* Quick resolution of compensatory tariff issue: The matter of compensatory tariff is pending with APTEL. A faster resolution will help reduce under-recoveries for the aggressively bid-out projects using imported coal.
* Flexible structuring under 5/25 scheme: Flexible structuring of loans of under the 5/25 scheme with a moratorium of 2-3 years can provide respite to stressed power projects and ease the pressure on cash flows.
* Reforms in distribution needed to restore PPA bidding: Discoms continue to be the weakest link in the power value chain due to their precarious financial health. This risk has historically manifested through delayed payments to generators. However, in the recent past it has also started to manifest in the form of lower energy demand and therefore a reluctance to commit to long-term PPAs. This has spawned a new risk for the generating companies: exposure to the vagaries of the short-term electricity market, which, in turn, leads to low PLFs. Structural reforms are critical to improve the financial health of the distribution sector.

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