A staggering $20 billion worth of debt split roughly equally between operational and under-construction power projects reportedly at risk and other roundups
Power News Commentary: October 2016
India
2011 paper for the Brookings Institute co-authored by the current governor of the RBI asked whether the exuberance of the Indian power sector had legs. The answer suggested by the paper was ‘no’. News emerging this week appeared to confirm the answer. A staggering $20 billion worth of debt split roughly equally between operational and under-construction power projects were reportedly at risk according to news items that cited a report by ratings agency Crisil. As per the Crisil report, around 17 GW of operational power projects with a debt of about $10 billion and another 24 GW of under-construction projects with roughly equal debt exposure were reported to be ‘high risk’. Cost-overruns, aggressive bidding at coal block auctions, issues over gas supply are among the reasons given but lack of demand for power was not mentioned.
While the Crisil report expected credit growth to the power sector to moderate to 5 per cent over the next three years compared to an average of 18 per cent in the last five years on account of the UDAY scheme (that shifts bank debt to the government balance sheets), it expected NPAs of the sector to increase from 1.3 per cent to 4.4 per cent in FY16. The quick and easy take on this is that once UDAY wipes out debt from the long suffering discoms, the Indian power sector would sprint into a cheap, clean and profitable future with solar power. To a pessimistic minority this may sound like irrational exuberance or exuberance that lacks legs as the RBI governor eloquently put it. The physics and economics of energy is on their side as both continue to favour centralised supply of uninterrupted energy generated by energy dense fossil fuels. A recent MIT report on solar power confirms this position as it observes that even if solar panels were given away free, coal based power will be cheaper for an industrial economy.
Among the more entertaining news on electricity was the item that claimed that nearly 500 Samajwadi Party workers in a village of poll bound UP joined the ruling Bharatiya Janta party citing lack of electricity in their villages. The question that comes to mind is, if people can convert from one party to another for electricity should they also not be given the freedom to convert from one religion to another or one caste to another for similar economic or social benefits? Staying with entertaining news, it was reported that the Power Minister continued his attack on the Planning Commission for its approach of setting targets for power generation that supposedly led power companies to invest ‘irrationally’. Once again the question that comes to mind is, if targets lead companies to invest irrationally, why then is his government setting targets for almost every form of energy? Will not the exuberant targets for coal, nuclear and solar energy set by his government lead to irrational investment?
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