India’s chronically troubled power sector remains a potent symbol of the economic slowdown, with poor demand and the snail’s pace of reform contributing to the pile-up of bad loans in the banking sector. Currently, power projects worth 25,000 Mw are up for sale by private sector companies that are looking to reduce their debt burden. The point to note is that all these are commissioned units, yet buyers are hard to come by. Buyers who have shown interest demand steep write-offs of over 60 per cent of the book value. The reluctance to load their balance sheets even with operational power plants reflects the structural weaknesses within the sector. This, in turn, raises serious questions about the viability of another 60,000 Mw of power plants that are under construction, with the knock-on impact on banks’ bulging bad loan portfolios.
Anaemic demand leading to lack of new investment is, admittedly, one element of the problem. Peak power demand is about 150,000 Mw against availability of 180,000 Mw and an installed capacity of 300,000 Mw. Indeed, the Central Electricity Authority has lowered its demand estimate through 2022 from 289 Gw to 235 Gw. Excess supply has already driven short-term tariffs down to Rs 2.5 a unit, half the rate of long-term agreements of Rs 5 a unit, which explains why many buyers, the financially strapped state electricity boards (SEBs),