46,000 MW of power projects facing viability issues: CRISIL

Annual 10% tariff hikes for next 3 years crucial for discoms to break even

Power projects of 46,000 Mw are currently facing viability issues due to lack of long-term buyers for electricity, inadequate fuel supply and aggressive bidding to win projects and coal blocks. Of this, 36,000 Mw are coal-based within which tariff under recovery has impacted 20,000 Mw of capacities, while the rest are reeling because of inadequate feed stock and poor electricity offtake by distribution companies (discoms). Further, 10,000 Mw of gas-based projects have become unviable due to dwindling fuel supplies from the Krishna-Godavari basin.

CRISIL Ratings in its report titled ‘Current Worries’ on power sector released on Tuesday said loans of Rs 75,000 crore are at risk, if issues are not sorted out soon.

CRISIL Ratings chief analyst officer Pawan Agarwal said, “Total loans to these stressed generation projects are currently Rs 2.1 lakh crore. A sixth of them, or about Rs 35,000 crore, is for projects which have the cushion of a strong parent. Additionally, projects with loans of Rs 1 lakh crore could become viable, if their payment profiles can be structured appropriately. This leaves the remaining Rs 75,000 crore of loans at risk.”

Another Rs 1.9 lakh crore debt is owed by weak discoms, for which moratorium on principal repayment based on a financial restructuring package (FRP) announced in 2012 and new in the current and next financial year. Till date, government support has prevented these discoms from turning weak. Assurance of continuing financial support is necessary; else this debt too can be at risk.

However, states and discoms after the FRP did not follow through fully with measures to improve financial discipline and commercial orientation. The FRP provided only liquidity respite. Discoms will continue to face liquidity pressure till there are appropriate tariff hikes, and a significant reduction in aggregate technical and commercial (AT&C) losses from the current level of 25.4 per cent.

CRISIL Ratings senior director Sudip Sural said 1 per cent reduction in AT&C losses will increase cash flow by Rs 4,000-5,000 crore. “Annual tariff hike of 10 per cent over the next three years and a reduction of at least 200 basis points (bps) in AT&C losses are necessary for discoms to break even in the medium-term. As for the health sector, improving agricultural metering and feeder separation, timely tariff filings and financial reporting, focus on power purchase cost optimisation through accurate demand estimation, and signing more power purchase agreements (PPAs) are necessary,” he noted.

According to Sural, significant efforts to augment domestic coal production and improvement in the ability of discoms to sign long-term PPAs are critical going forward. He said the government’s move to improve fuel availability through coal block auctions and gas subsidy provide only limited relief as the plant load factor (PLF) of capacities commissioned after 2009 will remain sub-optimal at 45 per cent. “If discoms remain financially fragile and stay away from signing PPAs, capacities at risk will increase,” he said.