India’s 80% power plants facing risk of default over coal, environmental issues

04 Jul 2011 Evaluate

India’s 80% power plants are facing the risk of default because of coal shortage and environmental matters. An organization of power producers had appealed government to form an expert’s panel or Empowered Group of Ministers (EGoM) to review the contracts awarded in the competitive bidding route.

'An institutional arrangement (possibly an EGoM or an expert group) may be set up by government to carefully evolve the principles and mechanisms to revisit the contracts, duly holding the developers accountable for aspects in their control, but finding practical ways for treating aspects that are not,' Association of Power Producers Director General Ashok khurana said in the communication to Planning Commission.

Because of fuel shortage and environmental issues, indications have already appeared of power plants defaulting from their current obligation. Recently, Indonesia and Australia had changed their norms for the coal exports. The revised norms have increased the prices of the import of coal from these countries, both accounts for 55% of the nation’s coal imports.

The situation is expected to worsen further, with 80% of plants likely to default on account of the shortfall in domestic coal availability; environmental issues involved in captive coal blocks; and change in law/regulations in the coal exporting countries, the note added. From last few years, the situation has changed dramatically because of many developments like an acute coal shortage threatening in the power sector, changes in the norms for coal exporting and environmental issues, and other developments, which demanded a revision at the bidding mechanism.

In 2005, the competitive bidding framework in the power generation was introduced, during the last five years, government electricity distribution companies have contracted more than 42, 000 Mega Watt (MW) capacity through the competitive bidding route.

The Association of Power Producers is a organization representing private power developers companies such as Tata Power, Reliance Power, Adani Power, Lanco Infratech and Essar Power, with almost 1,20,000 MW of power projects in various stages of development and operation under its belt.

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