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Working group for ailing power sector suggests reforms in Tariff and Fuel Supply Regime - Major suggestions are long-term fuel linkage, regulated tariff regime

  • The working group for ailing power projects, set up by the finance ministry and headed by India Infrastructure Finance Company (IIFCL) chairman and managing director S B Nayar, has submitted its recommendations to revive the sector. Among the 23 suggestions are long-term fuel linkage, regulated tariff regime, pass-through of increasing fuel cost, and financial package for the projects stranded owing to fuel shortage.

  • In order to ensure speedy completion of viable projects, the committee has opined the need for necessary financial support, coupled with longer amortisation of debt repayment and long-term fuel-supply mechanism. “The working group recommendations include regulatory dispensation such as easing provisioning, asset classification norms for assets which have been delayed for reasons beyond developers’ control, augmenting flow of both domestic and overseas equity and debt into the sector, required reforms in the distribution sector and regulatory facilitation for development of a vibrant corporate bond market,” said the report.

  • The report also suggests long-term fuel supply agreements for the projects with de-allocated coal blocks and projects with coal linkages. According to it, pass-through of increased fuel cost needs to be implemented with immediate effect. Members of the Association of Power Producers (APP), the representative body of private power producers, had met bankers on October 17 to discuss the issues faced by power producers and the measures that need to be adopted to mitigate those concerns. Following this, the finance ministry set up a working group under the IIFCL chief to examine the suggestions made by power producers and submit recommendations.

  • APP said out of the 136 Gw stranded power generation capacity with an investment of Rs 6.23 lakh crore, around Rs 4.36 lakh crore is feared to convert into non-performing assets. The existing power generation capacity of 16,000 Mw is under stress for want of cheaper domestic gas. Close to 28,000 Mw of power capacity is stranded because of de-allocation of coal blocks. The Supreme Court in its recent judgment had cancelled 204 coal blocks of a cumulative capacity of 45,000 million tonnes allotted over the past two decades.

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