Indebted power retailers seen scaring off investors
Delayed payments by the distributors and their reluctance to sign long-term purchase contracts are risks for investors
New Delhi: India’s money-losing state power retailers may be scaring off power plant investors, according to Sembcorp Industries Ltd, compounding the industry’s woes that have left about 20% of the country without electricity.
Delayed payments by the distributors and their reluctance to sign long-term purchase contracts are risks for investors, said Vipul Tuli, chief executive officer at the Singapore-based company’s India unit. It joins Spanish wind power producer Acciona SA and Goldman Sachs Group-backed ReNew Power Ventures in voicing concerns over the precarious business environment in India’s power industry.
“The lack of long-term offtake contracts and growing receivables are eroding returns for investors," Tuli said in an interview 1 December in New Delhi. “India must be competitive with other countries in terms of sustainable long-term infrastructure returns in order to attract investments."
Sembcorp, controlled by Temasek Holdings Pte, has 2,748 megawatts (MW) of installed generation capacity in India, including three coal-based units of 660 MW each. One of those units has yet to find long-term buyers for its power. A fourth, also without a contract, is yet to be commissioned, Tuli said.
Long-term purchase commitments aren’t available for almost 22 gigawatts (GW) of India’s thermal plants, about 7 % of the country’s total power generation capacity, according to TK Barai, a member of the Central Electricity Authority, the planning wing of India’s power ministry. That’s forcing generators to sell in short-term markets where tariffs are lower. Sembcorp declined 1% to S$2.88 as of 11.49 am in Singapore. The stock has fallen 5.6% this year.
Renewable capacity
Sembcorp is adding about 150-200 MW of renewable capacity in India every year and would consider adding more if risks are lowered, Tuli said. The company currently has 768 MW of operating renewable generation capacity in the country.
“Electricity distributors badly need industrial electricity demand to go up. That will significantly improve their finances and spur them to secure long-term supplies," said Debasish Mishra, a partner with Deloitte Touche Tohmatsu LLP in Mumbai. “Until that happens, these companies will be wary of locking themselves into long-term contracts and make do with available supplies in the shorter-term markets."
Most of India’s provincial electricity retailers make losses on electricity sales, selling below cost to the poor and agricultural customers and losing revenue to people who illegally tap into power supplies. Subsidy payments from the state governments and higher tariffs to rich households and industrial users partially compensate for the losses, but still leave retailers financially vulnerable. Bloomberg
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