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New act fails to charge up lenders to power projects

Calcutta, July 29: Banks and financial institutions are not keen to invest in the power sector even after the introduction of the Electricity Act 2003.

They feel that the act does not throw enough light on the “risk” factors involved from the lenders’ point of view.

A senior official of Industrial Development Bank of India said, “The implications of the Electricity Act 2003 is not yet clear to us. Many things need to be cleared first such as the tariff policy. As a lender that is our main concern. Till then, the lenders are not keen to invest in the sector.”

IDBI had suffered a major setback after the Dabhol Power Company fiasco. The incident has discouraged other FIs and banks from investing in the power sector.

A senior official of the State Bank of India said, “The government has allowed open access to power generating companies. But it is not clear to us what will be the tariff formula of these new generating companies.”

“What will be the accountability and credibility of these new generating companies'” questioned one banker.

The bankers also added that the pace of power sector reforms is not picking up. “We are watching the movement of the reforms. We may look into the sector when the state electricity boards undergo a financial re-engineering,” they said.

The power ministry has been urging the banks and the FIs to invest in the sector. “We are trying to put things in order,” a senior official of the power ministry said. The major concern of the government is to provide power to all by 2012.

The country is plagued by power shortages due to inadequate generation capacity. The total energy shortage during the last financial year was more than 39, 000 million units and the peak shortage was more than 10,000 MW. Based on the demand projections made in the 16th Electric Power Survey, over 1,00,000 MW additional generation capacity needs to be added by 2012 to bridge the gap between demand and supply.

It is estimated that for building over 1,00,000 MW of additional power capacity and associated transmission and distribution infrastructure, nearly Rs 8,00,000 crore of investments would be needed in the next decade.

The investors are wary of the sector because they are not sure they would get good returns on their investments. The payment security measures adopted so far have not yielded desired results.

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