Has Modi’s UDAY scheme fulfilled its destiny? A review of power sector

By: |
Published: February 11, 2019 6:19:23 PM

With the current estimate of thermal sector stress at over Rs 2.5 lakh crore of investments, the future of the power sector does not look promising.

Tata Power arm, Coastal Gujarat Power, Mundra ultra mega power plant,  power purchase agreementsIn the report, India Ratings and Research maintained a generally negative outlook for the power sector in FY20.

With the current estimate of thermal sector stress at over Rs 2.5 lakh crore of investments, the future of the power sector does not look promising. The question is, has UDAY, Modi government’s flagship scheme to alleviate power sector from its distress, worked? This comes in the light of India’s power sector being one of the highly stressed, according to the findings of a recent report.

Current challenges

In the report, India Ratings and Research maintained a generally negative outlook for the power sector in FY20. It also said that due to stretched stress capacity, no new fresh thermal power capacity addition could be expected from the private sector. Also, the AT&C losses have been higher than the set limit in the UDAY scheme.

Also read: Government hasn’t been realistic about India’s budget; fiscal deficit may spiral

Lack of regular fuel supply, reluctance of discoms in signing Power Purchase Agreements (PPAs), promoters’ inability to invest equity and working capital, and regulatory and contractual issues are some of the major challenges faced by thermal power projects, according to the study.

“There are not enough takers for all of these stressed assets and any unthoughtful action may result in huge credit recovery losses for the banks/FIs (financial institutions),” it added. Currently, 1 lakh crore worth Indian loans have turned bad or been recast.

Probable solutions

Tightening of IBC laws to make it stronger and effective is one solution. Another is to improve the macro environment that governs the power sector, the study concluded.

The report also suggests increasing coal supplies under the scheme SHAKTI, short-term power procurement by DISCOMs so that it can alleviate sub-optimal plant load factors (PLFs) and transparent allocation of coal for the same.

According to the report, a revival of the stress in a time-bound manner can be expected only by immediate remedial measures and mixed prolonged strategy rather than focusing on a unilateral approach. However, to add to the woes, the report claims that there is no universal solution for these stressed assets per say.

The report, however, concluded that the “timely and adequate tariff hikes would remain essential for a reduction in overall losses.”

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition