A better idea may to be to fix the underlying profitability of the power business.
Forget long-term power purchase agreements. State utilities are shy to sign such contracts anyway and prone to ditch them at the first hint of cheaper electricity
in the wholesale market. Let most of the demand and supply move to exchanges with open access for all bulk buyers and sellers, says Hemant Kanoria, chairman of India Power Corp., a 99-year-old company involved in both electricity
generation and distribution.
The share of power trading in the country’s overall demand-supply equation has been stagnant for years at about 10 percent. This needs to change.
The other big issue, as Kanoria rightly notes, is coal. India has no shortage of the fuel, but its dominant miner, which met 95 percent of its 600 million ton production target last year, needs to crack the whip on underperforming subsidiaries.
Power plants’ coal inventories are falling, and linking domestic availability to whether a producer has a long-term electricity
purchase agreement with a state utility isn’t helping. Rather than continue with a less-than-satisfactory auction system, let Coal India Ltd. fix a price at which it would assure supply to whoever is willing to pay and take away the feedstock.
Finally, financing costs, which have ballooned to half of the total expense of putting up a power plant, need a tweak. Restructuring unserviceable loans into other instruments — such as preference shares — would give producers some breathing room, Kanoria says.
It’s silly of lenders to expect that debt with annual interest rates of 16-percent-plus won’t eventually turn bad. Dragging borrowers to the bankruptcy tribunal won’t solve anything. Most assets would sell for scrap value; jobs would be lost. Sweeping the problem under the carpet of an asset management company may preserve employment, but the immediate financial hit to banks could upset their already weak capital position. Besides, if existing owners are booted out, who will run the plants?
It was relatively easy to leave Enron’s Indian unit in the care of a couple of state-run companies, as the government did in 2005. That can’t be a template for a problem 20 times larger.