In an indication of waning interest among overseas investors in the Indian power sector, CLP India Pvt. Ltd is considering an impairment on its books due to risks arising from erratic fuel supplies to its 1320MW Jhajjar project in Haryana.
“CLP is considering an impairment option. While the project has been up and commissioned, it is facing a coal shortage,” said a person aware of the development requesting anonymity.
Impairment is an accounting practice in which a company decides to write down the value of an asset and includes the loss in its profit and loss account.
CLP, founded in 1901 as China Light and Power Co. Ltd in Hong Kong, was among the two significant overseas entrants in India’s power generation sector along with US-based AES Corp.
While AES Corp. decided to wind up most of its operations here, while retaining a stake it owns in Orissa Power Generation Corp. Ltd as reported by Mint on 8 November, 2011, CLP’s impairment consideration stems from the low plant load factor (PLF) at the Rs.6,000 crore Jhajjar project.
A Delhi based power sector analyst who also didn’t want to be identified said, “What other options does CLP have?”
Due to low coal supply, the PLF for the project is around 42% as compared to the expected PLF of 85%, even though the first unit of 660 MW was commissioned for the project in March last year. CLP’s impairment plans come in the backdrop of its letter to the Prime Minister’s office on reviewing its investments in the country.
The Wall Street Journal reported on 19 December that CLP Holdings Ltd wrote to Prime Minister Manmohan Singh that it may be forced to “reconsider” its projects in India as it was “bleeding every day because of a fuel shortage, infrastructure bottlenecks and lack of policy initiatives to support growth.”
In response to a direct question on impairment, a company spokesperson said in an emailed response, “Unfortunately, we are too close to our results announcement (for CLP Holdings) that’s schedule(d) for February 25th and are not allowed to speak with media until then.”
CLP had won the bid for developing the project in March 2008. While 90% of the electricity from the project is to be supplied to Haryana, the balance was to accrue to Delhi to meet growing demand.
The project has received $400 million through external commercial borrowings. CLP has a power generation portfolio of 2714 MW in India, which includes the Jhajjar project and 740 MW of wind power generation capacity.
CLP isn’t the first company to consider impairment in the Indian power sector. Tata Power Co. Ltd, India’s largest power producer outside government control, plunged into losses for the year ended March after having to bear an impairment charge of Rs.2,460 crore, the bulk of it related to its Mundra power project because of an increase in the cost of imported coal and foreign exchange volatility.
Hong Kong’s biggest power supplier’s concerns were articulated by Ajay Singh Yadav, Haryana’s power minister, at the sixth annual conference of state power ministers on Tuesday.
“Insufficient quantity of coal allocation for the power plants situated in the state of Haryana is a matter of concern. Non-availability of adequate domestic coal for power plants is not only resulting in the existing power plants being idle, there also seems to be no clear-cut picture of the future in this regard,” Yadav said.
This development comes at a time when the Indian power sector will need an additional $400 billion investment in the 12th five-year plan that started in April 2012. The government is worried about the funding scarcity facing the sector, which threatens to worsen an energy deficit that is seen as a key bottleneck in efforts to sustain and boost economic growth.
A senior power ministry official requesting anonymity said, “What can we do? The coal problems are for everyone. It for the coal ministry to facilitate supply.”
India has been hit by a shortage of the fuel with the state-owned Coal India Ltd (CIL) unable to keep pace with growing demand. Coal demand in India is expected to grow from 649 mt per annum (mtpa) now to 730 mtpa in 2016-17. The availability of local coal is estimated at 550 mt in 2016-17. India’s demand for imported coal is growing and stands at an annual 137 mt.
The International Energy Agency projected in its World Energy Outlook 2012 report that by 2025, India will be the world’s second largest consumer of coal after China.