Budget lacks 'specifics' for improvement in power sector: Fitch

Says inadequate domestic production and infrastructure bottlenecks continue to act as constraints for ensuring adequate supplies to power plants

The measures unveiled in the Union Budget for the power sector are "directionally correct" but lack specifics to support a meaningful improvement in the short term, Fitch Ratings said today.

Noting that it would not be possible to increase coal production significantly within a year, the rating agency said inadequate domestic production and infrastructure bottlenecks continue to act as constraints for ensuring adequate supplies to power plants.

"The measures announced relating to India's electricity sector in the budget for FY2015 are directionally correct but involve relatively small steps or lack specifics to support a meaningful improvement in the short-term," Fitch Ratings said in a statement.

In the Union Budget, the government announced various measures for the power sector including an extension of the tax holiday for power projects till March 2017.

As per Fitch, this step would be "positive for investment activity".

"There are entrenched structural issues affecting the performance of the power sector of India and the solution would require a sustained and disciplined policy focus," Fitch said.

Besides, there is no immediate rating impact on any of the power companies - NTPC, NHPC and Power Grid Corp - rated by it. These entities have 'BBB-/Stable' rating.

"The budget also called for the provision of adequate quantity of coal to power plants commissioned by March 2015. However, the budget lacked very specific measures detailing how this will be achieved," the statement said.

In April this year, India's total coal-based power generation stood at 140 gigawatts (GW) and the same is expected to increase by around 15 GW per year, which would require an additional 60 million tonnes of coal.

"Domestic coal production is much lower than the requirements of the power sector, and hence we think the coal shortage at various power plants will continue... There needs to be a sustained and long term plan in order to consistently increase domestic coal production," Fitch said.

Further, the rating agency said the entire ecosystem of the power sector - from generation to distribution - needs to be strengthened.

"The financial health of the various state utilities needs to be improved through tariff rationalisation and by addressing transmission and distribution losses," it added.