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VOICE OF ELECTRICITY WORKERS
So Where is the power sector is heading?
How’s this for a shock? A
fuel shock? No, we are not quite talking of global crude oil prices hitting the
roof once more, and forcing world markets to crash. It’s the mundane issues back
home.
Power, that fuels the country’s growth engine, could well go phut even before
you blink. And this time round, power utilities stand the real test of groping
in the dark. They are blaming their predicament on a massive fuel shortage at
home. Predictably, those planning new capacities are facing the music.
Take this for starters. Work on at least four independent power plants in Andhra
Pradesh with an installed capacity of 1,500 MW is on the verge of collapse. The
Ispat group, GVK Industries, GMR group and EPS Oakwell Power among them, have
already sunk Rs 5,000 crore in upcoming gas-based power plants that have now
been left high and dry.
State-owned GAIL India, which had promised fuel supplies, has reneged on its
commitments because the management says it has no gas to offer. As fuel manager
to the projects, it should have been GAIL’s responsibility to arrange supplies.
On their part, the independent producers have to service huge loans irrespective
of whether their projects get started.
According to the power ministry “The agreements which have been concluded
between the fuel supplier and the power generator are practically one-sided.
While, the generator gets a take or pay agreement and is, therefore, under
obligation to buy the fuel or pay penalties, there is no such penalty for the
fuel supplier.”
Ordinarily, stymied power projects should spell financial ruin for the promoters
and come as a major setback for lenders. Luckily for the four Andhra producers,
this is not the case. Lawyers working with state utilities and power developers
point out that ultimately it is the state electricity boards and transmission
companies that have to foot the bill.
The promoters in question have already signed power purchase agreements (PPAs)
with state electricity boards and transmission companies. Failure to supply the
committed power would normally mean penalties for the producers.
To bail themselves out of this mess, the promoters are now willing to switch to
more expensive naphtha as a feedstock. Gas-based power producers have the option
to switch to naphtha to run their plants. However, using naphtha as a fuel would
jack up generation costs and the rate at which they sell power to the state
utilities.
While this may ensure supplies for the SEBs and Transcos, the purchasers may not
have the money to pay for more expensive power. So, if the SEBs fail to buy the
generated power, they would be under obligation to pay a fixed cost to the
producers. Ultimately it will be chargeable to consumers. Now you know why the
SEBs are threatened.
But that’s only a part of the story. There are bigger issues at stake. Given the
countrywide power shortages, state electricity boards elsewhere are also facing
a crisis, triggered by fuel shortages.
There’s a huge shortage in the supply of coal, the primary fuel for thermal
power plants. Power generating companies such as NTPC are already importing coal
to meet short time requirements.
NTPC has already approached MMTC to import 1,25,000 tonne for the eastern coast
plants and another 50,000 tonne for Dadri, near Delhi. The company’s own
pit-head plants have been facing shortages as local coal mines have not yet been
given formal clearances for developing and commercial production.
This is bad news for NTPC which is on a major expansion drive, with 2,000 MW
fresh capacity additions planned for 2006-end.
Country’s indigenous coal supplies are 11 million tonnes short of demand. This
has prompted several SEBs, particularly in the coastal states, to explore
imports as power plants are forced to run below capacity. Linked mines, which
were to be developed for these power stations, are unlikely to be operational
before the next three years even if they immediately get all mandatory
clearances.
The mess on the fuel front comes as a major setback to financial institutions,
including IDBI, SBI, LIC and PFC. They have committed at least 70% of the cost
of the new and upcoming projects through debt at concessional interest rates.
“This is a very disturbing trend. It has taken a lot to bring investments in the
power sector. A situation like this may send wrong signals to investors and
funding agencies.” It would seem faulty fuel supply agreements that have little
to do with ground realities are indeed the root cause for this impending crisis.
So where’s the power sector headed? Chances are that planned and fresh
investments will soon dry up. And consumers may have to prepare for longer hours
of power cuts. The SEBs and Transcos would be left stranded with PPAs that
either force them to buy costly power or pay up for not buying at all. This will
force them deeper into the red. Courtesy: The Economic Times:6.5.05
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