lac of fund,coal shortage & reforms to hit power sector

Generating companies  in the country have surplus power but consumers face long cuts

Power sector is heading towards serious problem as many new plants have practically  no coal to burn, Financers are showing reluctance 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 2003was 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.

Power Ministry is trying hard to make sure the power sector gets enough coal and to help producers get better tariffs. 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