Singapore (Platts)--20Feb2013/633 am EST/1133 GMT

India's state-owned electricity sector is groaning under the weight of $40 billion of losses and is failing to supply enough electricity to industrial customers despite having access to spare generating capacity, Amulya Charan, a senior executive at Tata Power Trading Co told Coaltrans' 2nd Asia Coal Trading Forum in Singapore, Wednesday.

Charan painted a bleak picture of India's electricity sector, saying industrial customers in India were having to spend $10 billion a year on diesel fuel for their own back-up generators because of forced power outages, or load shedding by state-owned power generators.

"State Electricity Boards or state government enterprises are in a financial mess and are going ahead with load shedding rather than buying power to meet demand," said Charan, a 22-year veteran of the Indian power sector and currently Tata Power Trading Co's chief mentor for power trading and advocacy.

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"As a result, customers are left to fend for themselves when power is switched off," he stated.

Indian regulators were laboring under the misconception that this load shedding by state government-owned power companies was the result of customers being unable to pay for their electricity.

"A significant amount of customers are paying three or four times what power purchasers charge, and this is straining the competitiveness of Indian industry," said Charan, who said Indian customers were paying an average of Rupees 4.5 ($0.08) per KWh for their electricity.

SPARE GENERATING CAPACITY

Indian state power companies could avoid implementing power outages by making use of 14-16 GW of available generating capacity, but the sector was failing to utilize this spare capacity through offtake agreements, he said.

Charan pinpointed "mounting losses" sustained by Indian state-owned power companies as the cause of their load shedding, and said the sector's financial crisis had brought forward a rescue package from the Indian central government.

In his presentation, Charan said India's state government-owned power companies had combined losses of $20 billion last year, bringing their cumulative losses to date to $40 billion, and their total debt was expected to rise to $118 billion by the 2013-14 Indian fiscal year (April-March).

"India's central government has come up with a bailout for SEBs in the form of a restructuring loan with a moratorium on interest for three years to cover 50% of their liabilities," he said, adding that state governments in India would cover the other half of the losses.

State-owned companies dominate the Indian electricity sector, owning 80% of its 211 GW of generating capacity, while the balance or 20% is in the hands of private companies.

Each of India's 28 states has its own electricity market, and the country is overseen by four different regional electricity boards for north, south, east and west India, giving an overall patchwork framework.

The central government intends to add another 75 GW to national power generation capacity by March 2017 under the state's 12th Five Year Plan, and is expecting state-owned enterprises to build 42 GW of this new power plant capacity, and the private sector 33 GW.

Coal-fired power stations will comprise 70% of India's new generating capacity that will increase India's requirement for coal to 1 billion mt by 2017, said Charan, as he expressed doubts that the domestic coal industry would be able to produce enough coal for India's growing needs.

"Coal India was only able to produce 500 million mt/year for the past three years, and its production is practically stagnating," said Charan of India's largest coal producer which is majority state-owned.

India could succumb to an increasing dependence on imported thermal coal to meet this supply shortfall, he said.

"A shortfall in domestic coal production is another reason which is causing serious stress to the electricity sector. If prices keep on rising, and the rupee weakens, that will start stressing the ability of Indian companies to produce power and to sell it at regulated prices," he said.

--Mike Cooper, michael_cooper@platts.com

--Edited by Jonathan Dart, jonathan_dart@platts.com

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