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India’s power plants struggling to find customers

NEW DEHLI — Although almost a third of India’s citizens have no access to electricity, power plants worth about US$19 billion (S$25.6 billion) are struggling to find customers.

NEW DEHLI — Although almost a third of India’s citizens have no access to electricity, power plants worth about US$19 billion (S$25.6 billion) are struggling to find customers.

High interest rates at 7.25 per cent, and weak industrial demand, coupled with an unusually cool summer and unseasonal rains have curtailed electricity usage, leaving some 20 gigawatts of capacity — enough to power New Delhi thrice over, according to Mr Ashok Khurana, director general at the Association of Power Producers, a lobby group based in the capital.

“New plant initiations have come to a grinding halt,” said Mr Debasish Mishra, a senior director at Deloitte Touche Tohmatsu India Pvt. “The situation is very discouraging for anyone planning to set up a power plant ... If not addressed in time, we will swing from the current surplus situation to a major shortage in a few years.”

Power plants currently sell to electricity retailers, preferably on long dated contracts. But the financial health of those retailers, controlled by state governments and forced to supply power to farmers and the poor at subsidized prices, is worsening.

India’s electricity retailers have accumulated losses of 2.5 trillion rupees (S$52.9 billion) and lose 700 billion rupees every year, according to the first-year report card of Prime Minister Narendra Modi’s government. Reviving distribution companies will be crucial to Mr Modi’s pledge to provide continuous electricity to every household by 2019.

“That’s the reason why good demand from industrial customers is so critical for distribution companies — because they are the paying customers,” said Mr Khurana.

India’s electricity supply has improved in the last three years since a major power failure affected the country’s north, and the government has approved investment of 1.1 trillion rupees to upgrade distribution and transmission infrastructure across the nation.

Still, the electricity retailers lose about 1 rupee on every kilowatt hour sold, according to the power producers association. Moreover, state governments are not always assiduous in making their subsidy payments on time, forcing distributors to cut purchases and forcing outages, said Mr Mohapatra of PwC India.

Dr Rajiv Kumar, economist and senior fellow at the New Delhi-based Centre for Policy Research, emphasised the need for Mr Modi’s government to pull power distribution companies out of the debt trap, and expects government efforts to revive the economy to be visible in about six months.

“A critical area that needs more attention is power distribution. Unless that is fixed, our power sector will continue to be in trouble,” he said. BLOOMBERG

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