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Load-shedding With A Difference

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There is just one word that probably describes how most power company CEOs are feeling: powerless. As the year draws to a close, many privately held power producing firms are now feeling the effects of the issues that have been simmering for a long time, but without resolution.
The paucity of domestic fuel, much higher international coal prices, and long outstanding dues from distribution companies have forced power producing firms to run their plants at a low plant load factor (PLF), which implies  much lower-than-optimal efficiency. And while last year has been particularly bad for the Indian power sector, power producers nevertheless managed to carry on with their capacity addition plans.
But now, funding sources such as banks and financial institutions are also washing their hands of the new power projects; power producers feel they are being left in the lurch, looking for other funding sources to keep their expansion plans going, but in many cases without much luck. This may well force some of them to throw in the towel. 
Among the first to feel the pinch is Lanco Infratech. One of the bigger private players in India, Lanco has put its 1,200 MW Udupi power plant in Karnataka on sale. For its part, the company insists that this is a regular exercise. “We are always looking for a good valuation for an asset,” says K. Raja Gopal, director and CEO, Lanco Power. “This is being done for the general purpose of unlocking the value of good assets.”
1,200 MW is the capacity of the Udupi plant, which is on sale.
For some time, the market has been rife with speculation about Lanco’s financial troubles in recent times. The 1,200 MW Udupi power plant has had a poor run of late. Early in the year, the plant was running at a dismal 45 per cent PLF; the project was also caught up in tariff wrangles. Company officials, however, seem positive about the plant’s future. 
“The plant has come out of all the risks and is generating revenue presently,” says Raja Gopal, insisting that Lanco will get good value for the Udupi asset. Monnet Ispat & Energy has also been looking for investors to divest 20 per cent of its stake in the power business to address cash flow problems.
Seshan Balakrishnan, director-transaction advisory services, infrastructure, at Ernst and Young, says there are many firms that are in the market looking for similar deals. “These companies are looking to raise funds to finance their growth plans and given the current market conditions, the traditional route for funding has all but dried up,” he says. “This is a great opportunity for foreign players to buy some good assets in the Indian power sector.”
While bigger players such as Tata Power have not encountered any funding problems yet, the firm admits that in the absence of solutions to the critical issues faced by the sector, interest among private players  may be waning. “With all the issues prevalent in the sector, we don't see private power players retaining much interest in it,” says Anil Sardana, managing director, Tata Power.

(This story was published in Businessworld Issue Dated 07-01-2013)