From the Editor: January 18, 2014
After the Electricity Act, 2003 was passed, a large number of private companies started building big power plants across the country. Most of them were thermal (coal-based) plants, though there were also hydroelectric ones and those that were depending on gas from the KG basin for fuel.
Several of these would-be power barons were people who had made their money from other infrastructure projects - roads, ports, airports. Power was seen as a great new opportunity by businessmen for several reasons. For one, the then UPA government seemed really keen on reforming the power sector. Two, the country was seriously power-starved - the gap between generating capacity and electricity demand was huge, and growing. Finally, for many of the infrastructure players, this seemed like a logical extension of their business.
Between 2004 and now, nearly 150 GW of power capacity was built. Unfortunately, many of them ran into trouble almost immediately. Several of them had fuel supply issues. Gas from the KG basin had flattered to deceive. Meanwhile, international coal prices had shot up, while Coal India was not producing enough to provide all that was required by all the customers who had signed fuel supply agreements with it. And in some cases, disputes over price of selling power to distribution companies created problems for the newly- built generating plant. Over the last three or four years, quite a few of the new power plants were either operating at sub-optimal capacity or not producing at all.
The situation soon spiralled out of control for many of the power firms. In the boom years of the economy, they had borrowed heavily at low interest costs. Given their ambitions, most of the players were over-extended. None of which would have mattered if the economy had kept doing well. But as the downslide started on the overall economic front, and as interest costs rose, the debt burdens of the power plants threatened to take down the other businesses for many of these corporate titans. Lenders also started pushing them to sell off some power plants to reduce their overall debt burden.
Till the early part of last year though, while there were plenty of sellers, buyers remained scarce. This was because no one knew whether the new government would be able to solve the power sector problems - and they were waiting for some signals. Over the past six months, there has been a flurry of deals, and more deals are in the pipeline. Some players are exiting the sector altogether or bringing down their interests rapidly. Meanwhile, the buyers are doubling down their bets to augment capacity. Interestingly, some of the buyers are loading on even more debt to pick up everything they can.
Our cover story this issue, written by Assistant Editor Anilesh Mahajan, looks at the dealmakers, their ambitions, and whether these deals will change things for the overall power scenario in the country.
In this issue, you will also find some interesting stories on the microgrid ecosystem, the proposed payment banks and the return of Tata Global Beverages to its home base. And, of course, do not miss the business confidence index.
