46,000 MW power projects facing viability issues pose Rs75,000-crore loan risk: Crisil

Crisil today said 46,000 MW of power projects are 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 projects within which tariff under-recovery has impacted 20,000 MW of capacities, while the rest are reeling because of inadequate feedstock and poor electricity offtake by discoms. And 10,000 MW of gas-based projects have become unviable because of dwindling fuel supplies from the Krishna-Godavari basin.

Says Pawan Agrawal, chief analytical officer, Crisil Ratings, ''Total loans to these stressed generation projects are currently about Rs2.1 lakh crore. A sixth of it, or about Rs35,000 crore, is for projects which have the cushion of a strong parent. Additionally, projects with loans of Rs1 lakh crore could become viable if their payment profiles can be structured appropriately. This leaves the remaining Rs75,000 crore of loans at risk.''

Another Rs1.9 lakh crore of debt is owed by weak discoms for which moratorium on principal repayment – based on a financial restructuring package (FRP) announced in 2012 -- ends in the current and next fiscal.

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.

After the FRP, states and discoms did not follow through fully with measures to improve financial discipline and commercial orientation.

The FRP, thus, provided only a 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 believes significant efforts to augment domestic coal production and improvement in the ability of discoms to sign long-term PPAs are critical going forward.

While the government has taken some positive steps to improve fuel availability through coal block auctions and gas subsidy, these provide only limited relief and the plant load factor of capacities commissioned after fiscal 2009 will remain sub-optimal at 45 per cent.

And if discoms remain financially fragile and stay away from signing power purchase agreements (PPAs), capacities at risk will increase.

Says Sudip Sural, senior director, Crisil Ratings, ''Annual tariff hikes of 10 per cent over the next three years and a reduction of at least 200 basis points in AT&C losses are necessary for discoms to break even in the medium term. As for sector health, 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 PPAs are necessary.''

It is pertinent to note that provisions on timely tariff filing and pass-through of fuel and power purchase costs are a part of the amendments proposed in the Central Electricity Act, but success here depends entirely on implementation by state governments.

Paving the path for privatisation through distribution franchisees and evolving the open-access mechanism would induce efficiencies.