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New investment in thermal power is stalled for basic reasons: Kameswara Rao

Kameswara Rao, leader energy, utilities and mining, PwC India, replies to queries on what the Budget has in store for the power and metals sector

Kameswara Rao 

Kameswara Rao

What impetus would you recommend for encouraging generation, especially from coal, modernisation of plants including coal movement/conveying?
– S Balasubramanian


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Kameswara Rao: New investment in generation is stalled for some very basic reasons. The distribution utilities are reluctant to commit to long-term contracts, and investors are reluctant to build new plants until the tariff structure is clear. In the current contract structure, neither the buyers nor the sellers are able to judge the cost or the returns respectively and so are unwilling to commit themselves.
 
Further, state regulators have gone soft on tariff revisions this year, pushing distribution utilities into continued losses, increasing counterpart risk. As Indian banks are overexposed to the sector and returns are uncertain, raising finance is a challenge too. In the end, distribution reforms and private participation in distribution is necessary for the sector to self-finance and lower risk.

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