The power sector continues to face constraints in fuel availability, lack of signing of Fuel Supply Agreements and their bankability as well as losses incurred by distribution firms
One year after Prime Minister Manmohan Singh met leaders of the power industry to discuss various problems faced by the sector, very few of the actual issues have been addressed on the ground, according to a report by the Association of Power Producers (APP).
The power sector continues to face constraints in fuel availability, lack of signing of Fuel Supply Agreements (FSAs) and their bankability as well as losses incurred by distribution companies. The APP report clearly says there has not been any action on the lack of availability of domestic coal and pricing of imported coal.
"This is the most important issue facing Independent Power Producers (IPPs) today (over 69,000 MW) and should be taken up expeditiously. In the absence of action, this would have an adverse impact on the banking sector, equipment manufacturers and 12th plan capacity addition targets. We have requested for this issue to be referred to the Central Electricity Regulatory Commission (CERC) under Article 79 (92) (iv) of the Electricity Act, 2003," said Ashok Khurana, APP's Director General.
On the inadequate gas supply to the power sector, the APP said that even though the Empowered Group of Ministers (EGoM) considered prioritisation of Administered Price Mechanism (APM) gas, no decision was taken in this regard. Currently, the sector is receiving an average supply of less than 75 per cent of the requirement while 11,000 MW of gas-based power projects are under implementation. Of this, 4000 MW is expected to be operational by the end of this year and would need 16.4 million metric standard cubic meter per day of additional gas.
"The biggest challenge before the Indian power sector is to overcome issues of fuel supply and dismal financial health of distribution utilities.Quicker addressing and removal of regulatory bottlenecks is the need of the hour to ensure smooth and cheaper fuel supply along with timely tariff revisions for discoms. In view of this, it is imperative for the government to formulate a healthy energy security policy to balance the interests of consumers, power producers and discoms for the long term growth of the Indian power sector," a Reliance Infrastructure Spokesman told Business Standard.
Even FSAs are being signed with the developers after Presidential directive (regarding FSAs for 80 per cent of letter of approval quantity and PMO decision of reducing domestic coal by Coal India to 65 per cent (February 1, 2012), the ground reality is that Coal India is not meeting the supply commitment.
According to APP, projects are receiving coal supplies of 38 to 48 per cent of the committed quantity under a letter of assurance (LoA) resulting in functioning of these projects below 50 per cent plant load factor. They are even unable to recover their fixed cost. Further, many projects, which have commenced construction and are scheduled to be commissioned within the next 1-2 years, are still without coal linkages.
According to APP, the draft FSA provided by Coal India is not bankable as there are mismatches in duration (20 years for FSA vis-a-vis 25 years for Power Purchase Agreement) and an 80 per cent disincentive clause. On expediting environment and forest clearance for coal-bearing areas, APP notes that the group of ministers on coal has recommended clearance of Chhatrasal and Mahan coal blocks. Parallel processing of clearances has been initiated. Further, fast track mechanism may be initiated to speed up processing of clearances.
APP admits that major tariff revisions have taken place recently, and ten more states are now revising tariffs which is expected to expedite reforms in the distribution sector. However, the government has not made any progress on direct cash payment of electricity subsidy to the beneficiary and also on capping the regulatory assets of discoms.
Exactly a year ago (January 18, 2012), power industry captains had held a meeting with the the prime minister and a couple of other ministers to flag off about 15 major issues faced by the sector and had made more than 51 suggestions.