Power ministry says new plants may default on loan repayment

The power ministry has said many new power plants are running at half their capacity due to coal shortage and may default on loan repayment to banks if the fuel situation does not improve immediately.Most of the newly-commissioned power plants are unable to meet their contractual obligation to supply agreed quantity of power to state utilities, power secretary P Uma Shankar said in a letter to the coal ministry.A power ministry official said shortfall in coal supply was forcing companies to import and buy coal in spot market. "The additional cost incurred by developers is not a pass through in tariff. We have informed the coal ministry that the increase in cost is resulting in developers defaulting power purchase agreements. If the problem persists, developers may even start defaulting in payments to banks and financial institutions," the official said.

He said a large scale default would adversely affect power sector financing which is already experiencing a crunch. In a recent report, global rating agency Fitch cautioned that funding for the country's power projects could be slow. The ministry expects about 28 million tonnes of coal shortfall for power projects this year. The annual growth rate in supply by Coal India to power utilities has been 1.73% during the last two years, against the required 15%. Supply from Coal India to power utilities increased by less than a percent during May 2011.Power projects with 12,694-MW capacity commissioned in 2009-10 and 2010-11 require 55 million tonnes of coal. Projects coming up this year will need another 20 million tonnes coal. Against this, Coal India has agreed to supply 41 million tonnes coal to new projects while another 6 million tonnes is likely to be imported by power utilities.

In order to improve coal supply, the power ministry has asked Coal India to stop spot trade and meet committed coal supply to the power firms. "The spot sale or e-auction of coal was introduced for the benefit of consumers who do not have committed coal ties. Last financial year, power utilities had procured 10-12 million tonnes of coal. At least this quantity of could be supplied to power utilities on an assured basis," the official said.