About 46,000 MW of power projects are at high risk of not being able to service debt
The government’s UDAY Scheme to aid ailing electricity distribution companies (discoms) has a better chance of succeeding than the previous financial restructuring plan, says Crisil.
“UDAY is better than the previous financial restructuring plan that didn’t do much to change the health of the discoms. This time, with state governments on board and having more skin in the game, the chances of success are far higher,” Sudip Sural, Senior Director at Crisil, said.
State-owned discoms, due to their financial troubles, were not signing power purchase agreements, he said.
The government’s Ujjwal Discom Assurance Yojna (UDAY) scheme to revive them should mean that new PPAs will be signed in the future, he said.
Under UDAY, state governments will take over 75 per cent of the debt held by their discoms as of September 30, 2015. Half the debt will be taken over in 2015-16 and 25 per cent in 2016-17. The balance 25 per cent of the debt is to be serviced through state government-guaranteed bonds issued by the discoms.
So far, 15 states have joined the UDAY scheme. Around 90 per cent of the losses made by the discoms are covered by the states that had joined UDAY, Power Minister Piyush Goyal said two weeks ago.
“Many of these projects find it difficult to service their debt obligations because either the plant is running at a low plant load factor, tariffs are not adequate or they have won coal blocks where the premium to the state government is very high, which cuts into their cash flows,” Mr. Sural said.
Acknowledging that the problems faced by the power sector are systemic in nature, Mr. Sural said that the government has taken a number of steps to remove the sector’s distress.
“A number of policy decisions have been taken,” Mr. Sural said. “In projects where coal was not available, the government came out with coal block auctions.”
The government’s UDAY Scheme to aid ailing electricity distribution companies (discoms) has a better chance of succeeding than the previous financial restructuring plan, says Crisil.
“UDAY is better than the previous financial restructuring plan that didn’t do much to change the health of the discoms. This time, with state governments on board and having more skin in the game, the chances of success are far higher,” Sudip Sural, Senior Director at Crisil, said.
State-owned discoms, due to their financial troubles, were not signing power purchase agreements, he said.
The government’s Ujjwal Discom Assurance Yojna (UDAY) scheme to revive them should mean that new PPAs will be signed in the future, he said.
Under UDAY, state governments will take over 75 per cent of the debt held by their discoms as of September 30, 2015. Half the debt will be taken over in 2015-16 and 25 per cent in 2016-17. The balance 25 per cent of the debt is to be serviced through state government-guaranteed bonds issued by the discoms.
So far, 15 states have joined the UDAY scheme. Around 90 per cent of the losses made by the discoms are covered by the states that had joined UDAY, Power Minister Piyush Goyal said two weeks ago.
“Many of these projects find it difficult to service their debt obligations because either the plant is running at a low plant load factor, tariffs are not adequate or they have won coal blocks where the premium to the state government is very high, which cuts into their cash flows,” Mr. Sural said.
Acknowledging that the problems faced by the power sector are systemic in nature, Mr. Sural said that the government has taken a number of steps to remove the sector’s distress.
“A number of policy decisions have been taken,” Mr. Sural said. “In projects where coal was not available, the government came out with coal block auctions.”
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