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Indian Private Power Companies Cry for a Bailout,Want Socialization of Their Losses

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Indian Electricity Companies are crying for a bailout from the government after coal prices surged last year amidst shortages of coal.Note before the Lehman crisis,Indian private power producers were riding a boom equivalent to a mini tech bubble trading at crazy valuations.The reason was that the Indian government had opened the Electricity sector to the private players resulting in them winning contracts for 42 GW most of which were thermal power plants.At that time coal prices were quite low and there was no threat of shortages with India’s government owned Coal India providing secure long term contracts at cheap.The future looked great for companies like Reliance Power which came out with the biggest IPO in the Indian stock market history.Private companies were busy planning on setting up supercritical mega power plants of 4 GW capacity.

But now the dreams are gone with coal prices shooting up and the power producer acquisitions of foreign mines in Indonesia,Australia turning sour.Production of Coal has actually reduced with the Environment Ministry preventing mining in Forest Area and countries putting in minimum sales prices and levies.The companies don’t have price escalation built into the long term power purchase contracts.They are crying for a bailout saying that most of the new power projects would default and the newly built thermal power plants don’t have enough  coal.These companies should be penalized heavily as they should bear the burden of bad business decisions.Privatization of profits and socialization of losses should be prevented.Power Producers in India are quite powerful though and have frequently put down local protest with administration help resulting in even deaths by firing.

Why are Coal Prices going up

China is going to double its imports of Coal to 200 million tons while India too is expected to reach 100 million tons if not more.This has led to a massive increase in the price of coal even as major producers of coal like Bayan Resources,Bhakti Energi ramp up production in Indonesia.India is already suffering major shortages of coal with only 40 GW of the projected 80 GW of new thermal capacity having coal linkages.There are already reports that newly commissioned thermal power plants in India don’t have access to Coal.

Investing in Coal good idea despite its Green Disadvantages

Despite Coal having many dangerous disadvantages,its Advantages of cheapness and abundance have made it the Fossil Fuel of choice..China consumes almost 45% of the global coal production while Indian demand is growing by leaps and demands as well.Indian Power Utilities are grabbing up Coal Mines in Africa,Australia and Asia to secure feedstock for their gigawatt thermal power plants.Coal as an investment is almost a no brainer with its demand surging and with little alternatives.Here is a list of Coal Companies in India which form a great investment option.Though strange for a Green Investment Blog to recommend Investing in  Coal , the Dirtiest form of Energy,the fact remains that Coal is going to be the hottest investment in the next decade though Media remains focused on Oil and Gas.

India’s Biggest IPO Turns Bust

The most hoopla surrounded the February 11 listing of India’s Reliance Power Ltd., the biggest in India ever. Shares of the company — a power production and distribution subsidiary of the Anil Ambani-controlled Anil Dhirubhai Ambani Group, one of India’s largest conglomerates — were oversubscribed 73 times.

But on Monday, launch day, India Inc.’s plans were dashed. The price of Reliance Power stock plummeted on its first day of trading, taking the Bombay Stock Exchange’s Sensex index with it. Investors who had snapped up the pre-market shares for Rs 450 ($11.25) on talk that it would likely double on its opening day, lost an estimated $121 million as the stock headed south, closing at Rs 372.50 ($9.55) — 17% below its cost price.

Power producers seek protection from fuel shocks

Power generating companies have expressed their inability to honour contracts bagged under tariff-based competitive bidding unless they are insulated from increase in fuel prices .

The companies have asked the government to set up an expert panel to evolve mechanisms for revisiting the existing contracts. Over the past five years, power projects with 42,065 mw capacity of have been awarded through over 30 contracts. The association, a body representing 13 companies like Tata Power, Reliance Power , Adani Power , Lanco Infratech and Essar Power, told government that signals of plants defaulting obligations are being seen due to fuel and environmental issues.

About 80% of these plants were likely to default on account of shortfall in domestic coal availability, environmental issues involved in captive coal blocks and changes in regulations in coal exporting countries, it said.


Abhishek Shah

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