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 The ministry of power headed by Sushilkumar Shinde is trying to resolve two critical issues—financing of power projects on one hand and funding of private power projects on the other - so as to achieve the capacity addition targets of 78,800 mw in the ongoing 11th Plan and 1,00,000 mw in the 12th Plan.
As far as the financing of power projects is concerned, the ministry has written to the finance ministry to raise the lending capacity of Power Finance Corporation and Rural Electrification Corporation, the two principal government lending institutions for power projects. The power ministry is aware that both PFC and REC are likely to experience funding constraints—REC in near term and PFC in medium to long term.
The resource mobilisation capacity of PFC and REC may be constrained by the capital to risk assets ratio (CRAR). Even if liquidity is available in the market, industry exposure norms adopted by banks (15 per cent of total advances) could restrict credit flows. Similarly, the 10 per cent exposure limit of Life Insurance Corporation of India to the power sector could also limit the flow of funds to the two corporations. The ministry has proposed doing away with the exposure limits.
The ministry has suggested refinancing by India Infrastructure Finance Company from money raised through tax-free bonds to PFC and REC, which may also be permitted to raise Rs 10,000 crore each through tax-free bonds for lending to power projects. It also sought extension of the refinancing facility provided to banks by RBI for lending to PFC and REC.
On the issue of funding private sector power projects including merchant power plants, the ministry blamed the states for not encouraging the private sector enough, following which private developers were unable to tie up power purchase agreements. In the absence of PPAs, the financial institutions are exposed to unwarranted risks arising from problems like open access (which allows generating stations to enter the market and sell power directly to high-tension consumers), availability of transmission corridors and inability to enter into long-term PPAs even after a project is commissioned.
As per the current national tariff policy, except public sector generating companies, state power utilities have to procure power through the competitive bidding.
Power ministry officials told Projectmonitor that though standard bidding documents for both Case-I and Case-II had been finalised, the states were simply not coming forward to procure power through competitive bidding in the absence of which independent power producers were unable to secure PPAs.
Powwow on power
Highlights of the Conference of Power Ministers of States and Union territories held in New Delhi on June 23:
Target of 5,653 mw capacity addition in first 100 days UPA government, of which 2,319 mw has been achieved.
Target of 14,507 mw for 2009-10 and 78,700 mw for 11th Plan, out of which 15,036 mw has been commissioned.
A special advisory group on generation chaired by the power minister and consisting of experts, retired secretaries to GoI, and one nominee each from FICCI, CII and Bhel to be set up to expedite ongoing capacity addition projects.
Online short-circuit testing facility for transformers up to 315 MVA to be set up through a JV company comprising four CPSUs—NTPC Ltd, NHPC Ltd, PGCIL and DVC.
The power ministers of states raised the following issues:
Make additional power available out of unallocated quota and UMPPs.
Make available coal linkages.
Timely environment and forest clearances.
Place pending orders for BoP under 11th Plan projects by July 31.
Formation of JVs for coal block development by August 31.
Withdrawal of 5 per cent charge on profit of generation companies for local area development.
Initiation of Case 1 bidding by states anticipating shortages at the end of 11th Plan.
State transcos to be designated as nodal agencies.
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