The investor interest in the power sector is diminishing as lenders are starting to apply the brakes on funding of new private generation projects. Inadequate coal supplies for new projects has indicated to them that developers of projects close to commissioning could default on their loan repayments. A crash in merchant power rates and reluctance among SEBsâ€”whose cash position has been only worseningâ€”to buy power from the spot market has added to the problems.
Coal India (CIL) has not converted several Letter of Assurances issued to developers into firm Fuel Supply Agreements (FSAs). In the last two years, close to 35 thermal power projects adding up to over 14,000 mw have been commissioned,
where Coal India is yet to ink FSAs with project developers. In the absence of a firm FSA, CIL is not bound to maintain a minimum supply round the year, causing investors to worry. The power ministry has already sounded the alarm, projecting a sharp dip in coal supplies from CIL for projects that are entirely dependent on linkages.