Sluggish power sector could hit economic growth: India Ratings

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SummaryFuel supply risks and precarious financial health of electricity distribution companies continue to pose challenges for the power sector, whose slow progress could impact the country's economic growth, a report said.

per cent to be met through domestic coal, Coal India will have to increase its dispatch to the power sector to 436 mMT by FY15 (a Compound Annual Growth Rate of 12 per cent), which looks difficult."

The total investment required for 51,000 MW, including debt and equity, would be around Rs 2,75,000 crore. With fuel risks, there is a possibility of debt portion - of around Rs 1,75,000 crore - becoming non-performing assets for banks and financial institutions, Garg noted.

India Ratings said government's financial restructuring package for state-owned discoms is a positive step in the short term for the entire value chain of power sector.

"However, its long term benefits would depend on the ability of discoms to lower Aggregate Technical and Commercial losses, hike tariffs and control operational costs such that the average cost of supply decreases and average revenue increases," it noted.

Faced with mounting debts of discoms, which is over Rs 2.46 lakh crore, the Power Ministry in October came up with financial restructuring plan.

Taking over of 50 per cent short term liabilities of discoms by respective state government is a major proposal in the Central government plan.

"The package is voluntary and is currently being worked out by discoms in 10 states namely Rajasthan, Haryana, Uttar Pradesh, Tamil Nadu, Andhra Pradesh, Punjab, Karnataka, Jharkhand, Himachal Pradesh and Kerala," the report said.

India Ratings also noted that if the discoms are unable to achieve operational efficiencies, the package would only have successfully deferred the problems and not resolved them.

Meanwhile, the report said that merchant tariffs might rise due to "high deficits in energy and power, low Plant Load Factors (PLFs) for available capacities due to fuel shortages, low capacity addition, high fuel prices and increasing percentage of imported coal in overall coal supply".

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