- Central bank, govt looking to boost power output, cut losses
- Reviving demand and growth key to spurring power generation
India’s troubled electricity industry helps explain why the central bank lowered rates by half a percentage point this week. Burdened by high debt and afflicted by diminishing demand, the state-owned retail providers of power are bleeding cash.
The sector is a showcase for the need for lower borrowing costs and coordination between the Reserve Bank of India and the government to clean up bad debt piling up across sectors, boost flagging output and spur demand without fanning inflation.
A proxy for economic growth in a nation where official gross domestic product statistics have been subject to skepticism, electricity output growth has slowed over the past year. Power producers got a lifeline from RBI Governor Raghuram Rajan Tuesday, when he slashed borrowing costs.
"This is a welcome move for the power sector and our company," Ratul Puri, chairman of New Delhi-based generator Hindustan Powerprojects Ltd., said in an emailed statement on Tuesday.
Three charts show why power companies need help:
Losing $9 Billion
Generation companies, including NTPC Ltd., JSW Energy and Lanco Infratech, have voiced concerns that distressed retailers and subdued industrial activity are contributing to slowing demand for power.
Unable to meet costs due to subsidized tariffs, cash-strapped state electricity retailers are incurring losses of almost 600 billion rupees ($9 billion) every year.
Short of funds, retailers have been reducing electricity purchases, leaving power plants idle. The Plant Load Factor shows how much power is produced compared with a generator’s maximum capability.
Coal Stocks Surge
Rising coal stocks are another indicator of weak demand. The energy source fires 60 percent of Indian generators.