The debt threat lurking behind India’s power plants

In the central Indian village of Raikheda, the construction of a thermal coal power plant once promised jobs and economic progress.

Years after its completion though, the debt-saddled project that promised power supply to hundreds of thousands of homes, sits mostly idle. It is unable to buy coal to power the plant or sell electricity to utilities. Dozens of nearby stores that were reliant on the project’s success have shut down.

 Raikheda is not alone.

A Reuters analysis of India’s power output data shows over 50 coal-and-gas-fired power plants in India are largely mothballed, or operating at a bare minimum.

They are symbolic of a broader power sector struggling to service and pay off billions of dollars in loans, a major debt risk for the banking sector that could come to a head in coming months and ultimately leave tax payers picking up the bill.

After steel, power firms make up the second-biggest portion of India’s $150 billion mountain of bad debts. Steel made up roughly a fifth of the bad debts and power more than 12 percent.

Last month, the central bank ordered commercial banks – the main financiers of infrastructure projects in India, including the semi-complete, or largely mothballed power plants – to resolve non-performing debt problems in six months, or push defaulters into bankruptcy.

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