For the ailing power generation sector, the option to energise itself would be to unbundle the state utilities and purchase power under the ‘cost plus’ route, said E&Y in its report on the Indian power sector, titled “Energising the power sector”.
It argued that the sector has suffered due to lack of fuel availability, capital and under recovery of costs. Also, around 28,000 Mw of power purchase agreements have been signed at low prices, typically below Rs 3 per unit.
The global investors’ interest in the power generation business has also declined during 2006-13. Add to this inadequate transmission infrastructure and poor health of the distribution companies.
“A large value of power capacity under state utilities can be unlocked if monetised through listing/divestment,” said the report, “also the government should give one time relaxation to the project which have cost and time overruns due to fuel non-availability.”
The key growth drivers for the power sector, as per E&Y would be thrust on manufacturing, increasing urbanisation and potential economic revival. Increase in power demand would push for reforms in the sector.
To sustain the growth, substantial investment needs to put in by the private players. “Increase in the pace of the development of new transmission lines especially inter-state corridors. In line with same, distribution franchisee should be taken up to reduce AT&C losses,” said the report.
The report puts the onus on the government to provide an investor friendly policy environment to help resolve the prevailing issues. The report also lauds the reforms taken by the government namely re-allocation of coal, blocks, gas pooling and amendments to the Electricity Act, 2003.