Power sector NPAs call for unique fix

Flawed politics has stricken the power sector, and its woes have spilt over into banking, a fifth of whose non-performing assets, currently estimated at  Rs 10.3 lakh crore, involve some 34 stressed power projects, totalling 39 GW in generation capacity.

The Reserve Bank of India is right to insist on their prompt resolution, but we also need to boost power infrastructure to remove energy poverty, without handing over prize assets to some select industrialists at throwaway prices. This calls for simultaneous action on two fronts: fix the power sector, so that power assets can generate revenue, and park them with patient capital while the sector turns financially viable. India’s per-capita power consumption remains lowly and well below the world average. Talk of surplus power capacity is nonsense.

Three tasks cannot wait: improve transparency in power utility finances, end unbudgeted giveaways in distribution, and clamp down on electricity theft. Private power projects malinger for want of power purchase agreements (PPA), in the case of 18,000 MW of commissioned capacity, and for want of fuel linkage. Once politics finds the courage to make people pay for the power they consume, PPAs become viable.

Supply glitches in coal need to purposefully be removed. Power sector problems cannot be solved by financial engineering as in the UDAY scheme. The suggestion that state-owned Rural Electrification Corporation form an asset reconstruction company for stressed power assets is definitely worth exploring. But we may need multiple asset reconstruction companies for the stressed projects, including some created by the banks themselves.

In tandem, we need to rev up efficiency improvement in power generation and supply. Regional load dispatch centres must insist on least-cost power dispatch for the greater good. The fact is that till January 2011, the rule was that NTPC plants were not required to take part in competitive bids for project approval and, instead, supplied power as per a cost-plus formula. We need proper market design so that efficient power producers can gainfully seek custom.

This piece appeared as an editorial opinion in the print edition of The Economic Times.
Recommended By Colombia

via Power sector NPAs call for unique fix

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s