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Between April 2007 and March 2014 India added a record 1,00,000 mega watt (MW) electricity generation capacity, riding primarily on coal-based thermal power.Nearly 90 per cent of the projects were commissioned in the last five years. Sadly, such a capacity addition programme was undertaken without regard to the availability of fuel or the ability of the State government-run distribution utilities (discoms) to purchase the electricity.

A flawed levelised-tariff mechanism, added to the problem. Nearly 27,000 MW of capacities, including substantial pat of the gas based capacities, are lying idle due to lack of buying interest from the discoms, as is evident in falling plant load (PLF) factor.

Private sector that took a lead in capacity addition programme is worst hit. Beginning 2007, they added a little over 47,000 MW coal-based capacities, including 14,000 MW of imported fuel based facilities. Approximately 34,000 MW of such projects are under litigation for “unviable tariffs”.

They promised to sell electricity at a levelised tariff for 7 to 25 years. Their sickness is a major cause of concern for the banking sector. While imported fuel based capacities are paying a price for underestimating risks; the rest are victims of recklessness on the part of the Government in assuring more coal than the national miner could produce.

As the minefield of levelised tariff became apparent, discoms stopped entering power purchase agreements (PPAs), for the last two years. Nearly 7000 MW domestic fuel based capacities are idle for want of PPAs. An identical capacity has PPAs but no coal to generate power. After much deliberation the UPA Government brought a revised tariff bidding document last year. But it was rejected by the industry on grounds that the majority of risks are loaded in favour of the developer. With another 18,000-20,000 coal-based capacity slated to come on stream in two years, industry wants broad-spectrum policy measures to bring the sector back on the rails.

Budget expectations

But such policy exercises may not be a part of the Budget announcements, says Ashok Khurana, Director General of Association of Power Producers (APP). APP wish-list includes extension of 10-year tax holiday for new projects under section 80-IA of the Income Tax Act.

Other demands include, uniform sales tax structure on natural gas across States. Also, requisitioned is exemption of service tax for least cost project implementation and reintroduction of Mega Project (over 1000 MW) benefits to encourage new investments in generation.

Many in industry like Hemant Kanoria, chairman of the Kolkata based India Power, believes it would not be wise to offer incentives to smaller (than 1000 MW) projects, in the face of coal crisis and land acquisition hurdles. Subhranshu Patnaik, Senior Director at Delloite does not have any policy expectations. However, he is expecting removal or lowering of duties on coal imports.

Source-On Request