46,000 MW of power projects facing viability issues: CRISIL

Source: PTI

Power projects with a collective capacity of 46,000 MW are facing viability issues due to lack of long-term energy buyers, inadequate fuel supply, and aggressive bidding to win projects and coal blocks. Of this, 36,000 MW are coal-­based within which tariff under­ recovery has affected 20,000 MW in capacity. The rest are reeling because of inadequate feedstock and poor electricity off-take by distribution companies (discoms). Further, 10,000 MW of gas­-based projects have become unviable due to dwindling fuel supplies from the Krishna Godavari basin. In a report titled "Current Worries" released Tuesday, CRISIL Ratings said loans of Rs 75,000 crore are at risk if these problems are not resolved soon. "Total loans to these stressed generation projects are currently Rs 2.1 lakh crore. A sixth of it, or about Rs 35,000 crore, is for projects which have the cushion of a strong parent," CRISIL Ratings chief analyst officer Pawan Agarwal said. "Additionally, projects with loans of Rs 1 lakh crore could become viable if their payment profiles can be structured appropriately. This leaves the remaining Rs 75,000 crore of loans at risk." Another Rs 1.9 lakh crore debt is owed by weak discoms for which moratorium on principal repayment based on a financial restructuring package announced in 2012 and new in the current and next fiscal. Till date, government support has prevented these discoms from turning weak. The assurance of continuing financial support is necessary, else this debt too can be at risk. However, states and discoms after the FRP did not follow through fully with measures to improve financial discipline and commercial orientation. The FRP provided only a liquidity respite. Discoms will continue to face liquidity pressure till there are appropriate tariff hikes and a significant reduction in aggregate technical and commercial (AT&C) losses from the current level of 25.4%. CRISIL Ratings senior director Sudip Sural said 1% reduction in AT&C losses will increase cash flow by Rs 4,000­5,000 crore. "Annual tariff hike of 10% over the next three years and a reduction of at least 200 basis points in AT&C losses are necessary for discoms to break-even in the medium term. As for sector health, improving agricultural metering and feeder separation, timely tariff filings and financial reporting, focus on power purchase cost optimisation through accurate demand estimation, and signing more power purchase agreements (PPAs) are necessary," he noted. According to Sural, significant efforts to augment domestic coal production and improvement in the ability of discoms to sign long-term PPAs are critical going forward. He said government's move to improve fuel availability through coal block auctions and gas subsidy provide only limited relief as the plant load factor of capacities commissioned after fiscal 2009 will remain sub optimal at 45%. "If discoms remain financially fragile and stay away from signing PPAs, capacities at risk will increase," he said.    

July 28, 2015 | 8:24 pm IST.