Private investors staying away from power sector

ICRA laments poor financial state of state electricity boards

The poor financial state of state electricity boards (SEBs) has deterred private investors from investment in the power sector despite assured returns, said a sector study conducted by Investment Information and Credit Rating Agency (Icra).

"However, the last 12 months have seen significant changes in the power policy framework in the country," it says, adding that post Electricity Act 2003, many opportunities will emerge, which will have to be carefully evaluated by companies.

The critical parameter would be the scenario regarding cash profit or loss position of the state concerned, the report on the Indian power industry said.

The Electricity Act 2003 had opened up new opportunities for companies in power generation, transmission and trading. It also opened up scope for supply of power to consumers outside licence areas as franchisees, distribution licensees and power generators.

The Act provides the option to power producers to sell their electricity directly and not go through the SEBs.

"The companies entering the field of power generation and distribution will still have to evaluate the economics of power distribution in the state concerned.

"The continuing process of deregulation of SEBs will make these opportunities increasingly attractive," it said, adding that current licensees, however, would see an increase in competition.

The demand for power was expected to continue to increase over the medium to long term, necessitating significant increase in capacities, resulting in increased demand for generation and distribution capacities.

The key success factors for a power generation and distribution company were presence in premium areas and states, a high level of integration, high plant load factor and availability.

In addition, low transmission and distribution losses, strong distribution network, customer reach, geographical location of power generation facilities and strong financial strength were also critical.

The power sector was one of the most important growth engines for an economy, the Icra study said.

However, the Indian power sector continued to be plagued by a variety of weaknesses such as perennial shortages, skewed tariffs, poor distribution and sub-distribution networks and high aggregate technical and commercial losses, the report said.