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India’s eternal wait for ‘Power’ - Views on News from Equitymaster
 
 
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  • May 22, 2000

    India’s eternal wait for ‘Power’

    India’s fancy for subsidies has finally started to take its toll on its ambitious ‘Power sector reforms’. In the latest setback Alstom and UK-based National Power have pulled out of the 2,000 MW Pipavav project bidder’s list in Gujarat, apparently over the lack of adequate payment guarantees for tying up its revenue stream.

    The concern is not new. Two other contenders-Siemens and PowerGen had recently backed out from the same project for similar reasons. But the real questions remain unanswered. Why do these power majors look for guarantees from the state governments? Why such lack of faith? And is their attitude fair?

    To a large extent their actions are justified. Companies invest large chunks of capital in order to get a decent return on investment. But investments in the power sector in India are fraught with risks. State electricity boards (SEBs) are financially in a state of mess as a result of years of subsidisation. Large-scale pilferage of electricity has also added to their financial woes. On top of that the bureaucratic hurdles have made investment in the sector very unattractive.

    All valid arguments. But all these power majors were well aware of all these faults. Still they decided to enter the field. Now, why this dearth of confidence? Why this overt stress on guarantees and counter guarantees? Any business or investment carries a level of risk. You make investments riding this risk. So is true for the power sector.

    A lot of work has already been done to clear the hurdles. Much still needs to be done. But then, both the independent power players (IPPs) and the government have to work together to solve these issues. Both need each other’s cooperation in equal measure.

    Simply running away from issues will not help solve India’s power problems. The corporates surely realise that there is money to be made in the long run. Similarly, it is in the government’s own interest to keep working overtime to clear all hurdles and to take a firm stand to stop unnecessary subsidies.

    People of India are tired of the frequent load shedding and power cuts. They are willing to pay the actual cost for non-stop constant electricity. It is now up to the IPPs and the government to realise this.

     

     

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