Payment guarantees needed for power projects in India

Feb 10, 1998 01:00 AM

Jan. 5, 1998 India should resume guaranteeing payments to power supplied by private producers if it wants to attract large projects in the country, a top power industry official has said.
"If we want large private investment in power projects, the government should seriously reconsider guaranteeing payments for power supplied,'' R.V. Shahi, chairman and managing director of electricity firm BSES Ltd., said recently.
Shahi said the guarantees should be an interim measure, for the next 3 - 4 years and only for larger power stations of 1,000 MW or more.
"The government should put this as a safeguard that if payments are not made, it will guarantee the payment. The more the government says it will not do it, the more investors become apprehensive,'' he said.
After ending the state monopoly in the power sector in 1991, India offered sovereign guarantees to 8 power projects as a measure to assure payments on behalf of the financially weak state electricity boards (SEBs).
The measure was discontinued for later projects because of the likelihood of severe consequences on government finances in case of defaults by SEBs.
"The big projects came because all of them carry central government guarantees. With this taken away, where is the response for any large power station,'' Shahi said.
Even the small and medium-sized power projects that investors were now interested in carried all kinds of safeguards for payment, he said.
The BSES chairman said response from private investors to power projects in India has been disappointing since 1991.
"In the Eighth Five Year Plan (1992/1997), it was expected that almost 15,000 MW of additional generation capacity would come from the private sector but not even 5,000 MW came,'' he said.
"In future also, the response will not be very different if creditworthiness of SEBs do not improve. This is the single biggest problem for any significant investment to come into the power sector,'' he added.
Shahi said tariff structure of SEBs will haveto be appropriate and electricity transmission and distribution losses drastically reduced for their credit-worthiness to improve.
The BSES chairman forecast higher power output in 1997/98 (April-March) compared to the previous year. "Growth in electricity generation will be in the range of 5-6 % in 1997/98 compared to around 3 % in 1996/97,'' he said.
But this was much lower than the 8-9 % growth in the years prior to 1996-97, Shahi said, adding that he remained pessimistic on the power scenario in the medium term. "I don't think the situation in the next three to four years will be encouraging and it will tell on industrial and economic growth,'' he said.
India's economic growth has slowed since the second half of financial 1996/97 due to reduced government spending and lack of consumer demand.
Industrial output rose 5 % for the first seven months of 1997/98 against the double-digit growth of a year earlier, government data shows.

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