Lack of coal, reforms & funds may lead India's power sector into crisis

India's power sector is heading for a serious crisis as many new plants have no fuel to burn, lenders are reluctant to fund projects, and state distribution utilities are in such a financial mess that companies have a power surplus while consumers face long blackouts. Power producers and financers say this is the worst crisis in the sector since 2003, when a path-breaking Electricity Act was expected to herald rapid growth in generation, transmission and distribution of power to fuel the rapidly expanding economy. 

The new law had cleared several obstacles for private capital in the sector, helping the country rapidly add capacity. Government officials say an unprecedented 60% of the new capacity to be added in the next Five-Year Plan would come from the private sector. But companies that can build this capacity say many new projects may collapse as they can't sell electricity at remunerative rates even if they get fuel to fire their plants. Lack of distribution reforms, low power tariffs and fuel scarcity may force investors to stay away from the sector. 

Lenders turn cautious 

Even if power companies are willing to build new capacity, funds won't come easy. Financial institutions are increasingly cautious. State-run Power Finance Corp and Rural Electrification Corp have started asking companies to have fuel agreements in place before disbursing loans. 

But Coal India won't promise fuel unless half the project is complete. Just two months ago, lenders were happy to part with funds provided companies arranged for fuel supply within a year of first disbursement. 

"We are careful and concerned," said a top official of Rural Electricity Corp, which has the mandate to energise thousands of villages with new electricity lines. Power Secretary P Uma Shankar says his ministry is trying hard to make sure the power sector gets enough coal and to help producers get better tariffs. "We are approaching the APTEL (Appellate Tribunal for Electricity) to get tariff revisions done," he said. 

The power ministry says about 17,000 mw of new and upcoming projects will not operate as there is no coal. Further, plants with capacity of 5,593 mw, commissioned in 2009-10, will generate only 42% of actual output.