power sector's shine

Agencies | New Delhi | Updated: Dec 21 2011, 13:54 IST

Discoms presented a dismal picture, with projected losses of Rs 70,000 crore last fiscal. (Reuters) SUMMARYFuel

scarcity, regulatory inefficiency and funds paucity hurt discoms and sector at large.
Saddled with shortages, the power sector lost its promised sheen this year as fuel scarcity, regulatory inefficiency and funds paucity ushered in developmental gloom. With a forgettable 12 months coming to a close, what remains are hopes of "reforms and restructuring" in the power sector in 2012. From delays in the flagship Mundra UMPP and other projects to bleeding power distribution companies (discoms) hurting lenders, a persisting uncertainty has also hurt investment flows into the sector. Besides fuel shortages, political and business sensitivity on the issue of tariff hikes as well as the proposal to impose duty on imported power equipment, especially from China, contributed to the uncertainty. Nevertheless, 2011 began on a relatively positive note, with Power Finance Corp's stake sale mopping up over Rs 1,145 crore. But then, a raft of negative news began to trickle in, including pricey fuel posing the proposition of a Rs 500 crore annual loss for the Mundra UMPP in the first year of operations. Discoms presented a dismal picture, with projected losses of Rs 70,000 crore last fiscal. The high-level Shunglu Committee has

come out with a slew of suggestions to absorb their losses, such as creation of a Special Purpose Vehicle (SPV). All these factors have hurt overall investment flows into the power sector, especially in the second half of 2011, according to experts. "This was the year when all the risks, mainly coal shortages, surfaced, affecting many projects. There were regulatory, policy and investment hurdles, among others. The power sector seems to have almost hit the bottom in 2011," said Salil Garg, the Director of ratings agency Fitch's Asia-Pacific Utilities team. "Next year, we expect to see restructuring and reforms happening in the power sector," he added. Eyeing 9 per cent economic growth, the country is well short of meeting its power capacity addition plans. The target of 17,601 MW for the current fiscal, ending March next year, is unlikely to be achieved, thanks to slippages and shortages. Depending mostly on thermal plants for energy, inadequate availability of coal has been a recurring theme in the Indian power sector. The problem has been accentuated by environmental hurdles