Power companies can’t crank up as banks sit on loans

Power companies that have won coal blocks in the recent auctions are finding it tough to raise funds -not just to operate or develop the mines that they just got, but to run daily operations as well -as banks have become wary of the gov wary of the gov ernment’s move to limit the cost that electricity producers can pass on to con sumers.

Banks have put applications of companies that have sought funds on hold, said a senior executive at one of the private power producers. Some lenders have asked the companies to first get clarification from the government on the matter as they fear such a cap would hurt power producers’ ability to pay back loans, this executive said. “The proposed plan will affect lenders’ ability to lend,” said an official at a state-run bank. “Banks are careful as the power sector is very capital-intensive.”

The development could cripple an industry already hit by an acute shortage of fuel. Companies had bid aggressively to get coal blocks after a Supreme Court order last year revoking licences on 200-odd captive mines made their projects with capacity to produce thousands of megawatts vulnerable. Reluctance on part of banks, which are extra cautious on the power and other infrastructure industries that account for most of their bad loans, could further delay the efforts of power producers to revive projects on hold and expand production.

The companies had agreed to forgo the mining cost they were allowed to pass on and instead pay the government, in what is called negative bidding. The government is worried that they may now use some other cost heads to pass on the expenses to consumers and the proposed cap is to prevent any rise in tariffs because of such moves.

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