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

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

Kameswara Rao: New investment in thermal power generation is stalled for some very basic reasons. The power 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.