Power firms face investment deficit

The country's power sector seems to be losing steam as fresh investments appear to be drying up.

With no orders emanating from the private sector during the first half of the current financial year ended September 30, public sector NTPC is the only company which has come out with an order for a major power project.

"Although NTPC has opened the bids for its tenders, it could take another five to six months to finally place the order for the power equipment," an executive of a power company, which has been shortlisted for the project, told Mail Today. Senior officials point out that while the government is pinning big hopes on the private sector to meet a significant portion of the $ 1 trillion investment required to give a fillip to the country's sluggish infrastructure, the power sector seems to be in the doldrums at this point.

The lack of orders is having a cascading effect on the order books of leading power equipment manufacturers such as Bharat Heavy Electricals Ltd (BHEL), Larsen & Toubro (L& T) and Lanco Infrastructure. L&T has already indicated that it is going slow on its expansion plans given the business environment.

This is giving rise to serious concerns as a gross domestic production (GDP) growth rate of nine per cent for the economy would require a 15 per cent growth in the power sector, a senior official said.

The situation was much better during 2010-11 when public sector behemoth BHEL alone had won orders of over Rs 20,000 crore during the first half of the year.

According to industry sources, the government has dampened the spirits of prospective investors in the power sector by not clearing coal linkages for power plants, which are stuck over environmental clearances.

The initiatives of private sector companies to buy coal mines in Australia and Indonesia to source coal have also come a cropper as these countries have changed their pricing policy to jack up the price of the fuel.

Shortage of natural gas is also posing a problem as the output from the KG basin eastern offshore gas field operated by Reliance Industries Ltd has fallen short of its target.

Land acquisition for power plants is another hurdle as the government has been taking its time to formulate the new policy.

The sharp rise in interest rates, which has crossed the 13 per cent mark, has also forced many power companies to take another look at their investment plans as this has impacted the profitability of the proposed projects.

Economists attribute the hardening of interest rates to the hawkish monetary policy of the Reserve Bank of India, which has raised key interest rates 12 times this year to control inflation.

"Interest rates play a key role as power plants require huge investments. An investment of Rs 8 crore is required for generating one MW of power and delivering it to the consumer," a senior BHEL official explained.

This means that an investment of Rs 160,000 crore would be needed to generate 20,000 MW of power. And if finance is not available at reasonable interest rates it becomes difficult to attract such investments, he added.

Courtesy: Mail Today