"As far as funding these projects are concerned, unless the government steps in and buys these assets from the owners, nothing would work," says R Venkataraman, Senior Director, Alvarez & Marsal, during an interaction with the INFRASTRUCTURE TODAY.
What are the roadblocks faced in funding greenfield power projects in India?
If you look at the current state of power generation projects in India, we have around 40-45 GW of stranded capacity. Of this, around 10-15 GW of capacity is operational, but unable to generate any power due to lack of Power Purchase Agreements (PPAs). There are projects (with a capacity around 20-25 GW), which are 80 per cent complete, but stuck due to lack of funding. In addition, nearly 15 GW of gas powered power plants which became operational a few years back, are not able to generate due to non-availability of gas.
The fundamental issue is that the commercial viability of these power generation facilities is still not established primarily because there is no PPA in place and consequentially there is no off-take of power. On top of it, the entire scenario worsened (a few years back) by lack of coal availability which is not much of a concern today. The distribution companies are buying power only to the extent that they can pay for. While this is good fiscal discipline, the impact is huge on the generators. Unless the downstream retail tariff is deregulated and discoms allowed recovering their cost through tariff rationalisation, the scenario will not change and discoms will continue to resort to load shedding. Further, they require capex to maintain and upgrade the distribution network which is lacking in efficiency and capacity, thus increasing T&D losses.
The entire power sector is marred with impediments like funding, gas availability, stranded assets, etc. In this case what kind of funding option do you think the government can adopt or consider?
While many Independent Power Producers (IPPs) have incurred time and cost overrun due to multiple reasons, some of these assets are of good quality. And, it is unfortunate that they are not being utilised. Each project has to be evaluated on its
own merits and solution found to at least fund and complete some of these under-construction projects. During such period, one can hope for the reforms and regulatory initiatives to deliver results. Setting up of a separate fund to take over these projects or setting up a holding company to house these assets and then implementing a case to case plan would be a good way to look at it. An example would be the NHAI initiative to examine individual road projects and then adopting a one-time funding option to complete the stranded roads.
But do you think, government can infuse funds and start rolling out these projects?
While most of the stranded projects are IPPs, banks have a very large exposure and so it's in the interest of the banking system and economy as a whole that a viable solution is found at the earliest. Like I mentioned earlier, government will have to create a separate fund or a holding company to house these assets. The ownership will have to be transferred to this entity through the banks first taking total equity control and then transferring the assets to these entities.
How much of investment must have been stuck in the sector?
If we consider the total stranded capacity as estimated above, the quantum of investment that's stuck will be to the order of more than Rs 2 lakh crore.
- Rahul Kamat