If Gujarat Govt’s Bailout of Power Plants Is Approved, Consumers and Lenders Will Pick up the Cheque


If Gujarat Govt’s Bailout of Power Plants Is Approved, Consumers and Lenders Will Pick up the Cheque

At a time when dozens of power plants are set to be dragged to bankruptcy courts for defaulting on loans, a high-level panel has recommended a bailout for the Gujarat-based stranded generating stations of Tata Power, Adani Power and Essar, whose costs, estimated at staggering Rs 1.29 lakh crore, will have to be borne by electricity consumers.

Lenders too could lose over Rs 17,000 crore in haircuts, according to rough estimates prepared. These plants are in trouble because their developers’ bets on the long-term Indonesian coal price have gone wrong. The private developers had quoted fixed fuel costs for the supply of electricity under long-term contracts, assuming that the Indonesian coal price would remain unchanged.

But in September 2012, the Indonesian government switched over to international indexes-based pricing for sale of its coal, shunning the traditional model of contract-based pricing. Indian power companies, which had bet on the long-term Indonesian price remaining unchanged, were left staring at their failed gambles. Read More

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