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  1. Economic Survey 2017-18: Tariff renegotiation, judicial delays threat to power sector

Economic Survey 2017-18: Tariff renegotiation, judicial delays threat to power sector

Economic Survey 2018: The finance ministry’s Economic Survey tabled in Parliament on Monday identified judicial delays and power-tariff renegotiation as some of the areas potentially hurting investment in the renewable energy sector.

By: | New Delhi | Published: January 30, 2018 8:19 AM
budget 2018 budget date budget 2018 india India budget Union budget 2018 budget 2018 expectations budget impact on power sector power distribution charges after budget budget to impact electricity bill Economic Survey 2018: The Survey also claimed that power companies gained from the current economic scenario with a stronger rupee and lower interest rates. 

Economic Survey 2018: The finance ministry’s Economic Survey tabled in Parliament on Monday identified judicial delays and power-tariff renegotiation as some of the areas potentially hurting investment in the renewable energy sector. The Survey reiterated the relevance of using the direct benefit transfer (DBT) to dole out subsidies to the needy section and curbing wasteful consumption and emphasised investments and advocated investments in energy-storage systems to avoid import dependency. The Survey also claimed that power companies gained from the current economic scenario with a stronger rupee and lower interest rates. The survey said that as many as 11 power ministry projects, worth Rs 23,913 crore, are currently stayed by court injunctions, for an average duration of three years. Judicial delays lead to a number of complexities in ‘Ease of Doing Business’ and raise project costs, mostly debt-financed, by about 60%, it noted. The survey suggested coordinated action between the government and the judiciary to boost economic activity in the country.

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The survey acknowledged the recent phenomenon of tariff renegotiation by cash-strapped state-owned power distribution companies (discoms) which have pledged to reduce their power procurement expenses under the Ujwal discom assurance yojana (UDAY) scheme. Some discoms started to renegotiate electricity tariffs, mutually agreed in power purchase agreements (PPA), with independent power producers after new record low rates of solar and wind-based power through competitive bidding. Citing a Crisil report, the survey pointed out that renegotiating the tariffs could result in risk for investments worth Rs 48,000 crore.\

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Acknowledging renewable energy as “the future”, the survey suggested to introduce payment guarantee fund or foreign exchange fund to boost investor confidence in renewable energy. This is quite a contrast to the last survey published in August, 2007 when it had sceptically noted that having 175 GW of renewable energy by 2022 would leave a large part of conventional power plants idle or running at low utilisation levels. This means that assets with estimated investments of around Rs 1,50,000 crore to Rs 2,40,000 crore would find it difficult to repay debts.

However, it said that “there is a case for revisiting the subsidies and incentives being given to the renewable energy sector.” The August survey had noted that the recently discovered low renewable energy tariffs had been partly a result of government subsidies/tax holidays and other incentives. The survey said that power and renewable companies prefer a strong currency which reduces costs of imported capital equipment, financed with dollar loans without affecting rupee-denominated revenues.

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Low interest rates reduce their debt service burden on domestic loans. In the first-nine months of FY18, the rupee strengthened by 2.5% to Rs 64.24/$ during December, 2017 from Rs 65.88/$ during March, trading in the range of Rs 63.63 to Rs 65.76/$. Taking a cue from the meagre domestic manufacturing capacity of solar power generation equipment, the survey said that substantial investments will ensure that India can be a leader in manufacturing energy storage systems—seen by many as the next frontier of power-sector investment.

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