The Government of India is reportedly considering an ordinance to usher in reforms for the power sector in India. As per a news report, the government is seeking to bring about various legislative changes including timely payments by DISCOMs, reduction in cross subsidy surcharge and penalties for inadequate tariff revision through the ordinance route. These and other changes in the Electricity Act 2003 have been mooted for a long time, but the government has failed to get parliamentary approval as states are not on board with the proposed measures.
- 2019 was a brutal year for the industry with negative developments all around including from some unexpected quarters;
- The perilous state of the power sector is straining market confidence;
- An ordinance is a temporary solution at best, whereas the need is for more robust solutions;
The prospect of an ordinance for sector reform aptly sums up the hopeless situation right now. This route is used mainly to introduce legislation in urgent circumstances when the Parliament is not in session or there is no hope of passing the relevant bill. However, ordinances are essentially temporary in nature and need to be passed by the Parliament within 6-12 months or else, they are overturned.
Indeed, ICRA, a local credit rating agency, has downgraded power sector outlook to negative this week. Perilous financial position of the DISCOMs coupled with severe financing and execution impediments are straining market confidence. These issues have been simmering for a few years now but disappointingly, the situation has continued to deteriorate. To make matters worse, the year 2019 brought negative news from some unexpected quarters.
Table: Key sector developments in 2019
Fortunately, India RE remains a magnet for global investors as evidenced by multiple transactions in just the last few months (ReNew/ CPPIB and ADIA, Azure/ CDPQ, Greenko/ ADIA and GIC, Hero/ Masdar, CLP/ CDPQ, Temasek). But investor patience is wearing thin and if solutions are not found expeditiously, there is a risk of lasting damage to RE prospects.
Quick update on capacity addition in 2019 – we estimate a total of 13.5 GW capacity to be added during the year, up 29% over 2018 but below 2017 numbers as well as massively short of government target.
Figure: Annual RE capacity addition, MW
Source: BRIDGE TO INDIA research
We ended the last Weekly piece in 2018 with the statement, “The sector needs new thinking, policy visibility, and systematic government action to address specific challenges.” The statement has even more relevance now. Let’s hope that 2020 would bring more positive news and cheer.
