Power sector expectations from Narendra Modi govt
L. Madhusudhan Rao
May 26, 2014
Fuel availability: Production of coal and gas has not grown adequately and is affecting various projects. The government must ensure that domestic coal is available to all projects. Gas production has also taken a hit in the last two years and is affecting gas-based projects. The government must facilitate a higher output.
Salvage non-performing assets: Several macroeconomic factors over the last four to five years have led to non-performing assets in power and roads. Investments worth Rs 3 lakh crore were made in these projects assuming a certain growth rate. The calculations went wrong due to factors beyond anyone's control and resulted in non performance. The government should take a practical view of these problems and come up with a solution.
Improve investment climate: The above two factors have dried up availability of both debt and equity. The industry is apprehensive to take new exposures. Measures should be taken to improve investment climate. Addressing the above two issues will help in a big way.
Financial health of discoms: Power companies depend on distribution companies to offtake power and supply to consumers. Over the past two years, the discoms have been making losses and their financial situation is so bad that they have scaled down their purchases. Steps must be taken to ensure that they at least break even if not make profits.
Financial reforms: There is a mismatch between the period for which bank finance is available and the asset life of a project. Most projects have asset life of 35 years while bank loan is available for 10 years. Banks should have flexibility to restructure loans and improve liquidity. Financial reforms must be relooked at.
L. Madhusudhan Rao is Executive Chairman at Lanco.
As told to Ajay Modi