The Cabinet Committee on Investment (CCI) has turned up a bonanza for the power sector. Between them and the specially appointed Anil Swarup Commission, they should be bringing big smiles to the power sector at large and IPPs in particular. The committees have cleared 36 infrastructure projects, which were stalled on account of regulatory clearances at various levels. Of these projects worth Rs 1.83 lakh crore, half were from power sector with an estimated investment of over Rs 85,000 crore.
The government has taken up on war footing the task with an objective to revive investments and boost investment sentiment for the sector, in a rupee environment that threatens domestic equipment manufacturers and a policy environment that is quickly shunning foreign investors away. The large projects cleared include four major power plants: Reliance Power's beleaguered 4,000 MW UMPP at Sasan in Madhya Pradesh, a Hindalco Industries' project, Essar Power's Jharkhand project and a Jaiprakash Power plant. We can hope that the move will ensure liquidity inflow for the sector. Banks have already disbursed about Rs 30,000 crore for the power sector, and as Finance Minister P Chidambaram predicts, projects credit flow would begin once these projects start rolling. Fast tracking projects is an imperative fire-fighting exercise that the Prime Minister initiated pretty much as a lone ranger. This is not a good sign: while the PM must be commended for intervening, projects should be cleared through the normal course, so it does not reflect well on other ministries and bureaucracies. Another development is that the Committee has also extended the date for signing of fuel supply agreements between Coal India Ltd and power firms from 31 August to 6 September. This minor postponement should not make a big difference so long as the ends are tied up soon. Of course, as the sector reels under the fuel cost hike, we should not be surprised if the industry's enthusiasm does not match the government's.
While the committees have provided some fodder to a dying spirit, other issues are cropping up that, if magnified, can be of concern to the gencos. As our cover story reveals, rising cost burden on state distribution utilities has forced discoms to bring down their purchase of power. The government's Rs 1.9 lakh crore bailout package dangles before many of the states, but the Centre has cleverly placed the rider that states need to show tangibly improved financial health in order to avail of the bailout.
As a result, some northern states have started to prefer to buy less power even at the cost of extending the load shedding hours. This has raised a serious concern for the power generator including the largest of them, NTPC as they have operational and upcoming plants but are suddenly finding difficult to get buyers.
State regulators need to step in because state discoms are mandated to lift power for their social obligation. Beyond that stipulation, it makes bad economic sense to let the state and its industries languish in darkness while the discom repairs itself. It is far more acceptable that states stick to enhanced tariffs and cutting down on AT&C losses before embarking on a potential trigger for a local slowdown.