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Home News Power Sector News Absence of PPAs with state utilities to hit generators like JSPL, GMR and Lanco

Absence of PPAs with state utilities to hit generators like JSPL, GMR and Lanco

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generatorsIndia's power producers that are adding fresh capacity of more than 25,000 Mw in the next few years face a bleak future amid reluctance of state utilities to sign power purchase agreements or PPAs as they prefer to cut supply or buy cheap power from the spot market. Many companies do not have any PPA in place, which analysts say is due to weak industrial demand and the poor finances of state electricity boards (SEBs) that prefer to buy merchant power, which currently costs Rs 2.70 per unit.

"Absence of any significant growth in power demand across the country is a major concern as according to our estimates last fiscal it was only in the range of 0.4%, which is extremely low," said Sudip Sural, senior director, CRISIL Ratings.

"This is an outcome of the financial distress that most SEBs are facing and also the impact of the earlier economic slowdown, especially on the industrial side, which in turn has resulted in a lot of new power capacities not having PPAs in place." According to data compiled by CRISIL, the power demand in 2013-14 was much lower than the average annual demand growth of 5.2% in the past five years.

During 2013-14, supply grew 5.3% compared to the average growth of 6.8% in the five-year period. The share of industrial consumers in the power demand pie declined to 44% in 2013-14 from 47% in 2009-10. "Also, SEBs now prefer to buy spot power as it is much cheaper than signing PPAs. This situation is quite distressing and power producers are facing a precarious financial future," said Sural. The fresh power capacities are being planned by Jindal Steel and Power, GMR, Lanco, Avantha, RattanIndia Power and the KSK Group, with new plants coming up in Odisha, Chhattisgarh, Jharkhand and Maharashtra. None of these companies responded to ET's queries.

"I am concerned with challenges due to lack of PPAs as that may lead to projects not getting disbursement of coal under linkages or coal blocks, which in turn would lead to stranded capacities. We need distribution companies to come out with more bidding to ensure we don't get stuck with another set of stranded assets," said Manish Aggarwal, head-energy at KPMG India.

Debasish Mishra, senior director, energy practice at Deloitte Touche Tohmatsu, said, "It is a challenge for promoters planning new capacities as last fiscal the growth in power demand was just about 1% or even lesser and going ahead at least for the next two fiscals this is slated to continue, making the overall situation untenable for independent power producers."

As per the government's estimates, SEBs have an accumulated debt of over Rs 3,04,000 crore and losses at Rs 2,52,000 crore, putting them on the brink of financial collapse. "Primarily state utilities are procuring less to minimise financial losses as the tariff shortfall has widened with few tariff revisions this year," said Kameswara Rao, partner -energy, utilities and mining at PwC. Rao said that state utilities are not keen to initiate new tenders for long-term power procurement until the position on standard bidding documents and coal supply gets clarified.

"Further, operating plants continue to run at historical low plant load factors. This situation has put off any new investments and will translate into serious power shortages in threefour years," he added. The NDA government now plans to rework the Rs 1.9 lakh crore financial restructuring package for SEBs.

Source- ET

 

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