Expects Govt to open up coal sector to private mining firms

Rating agency Fitch said it will take the government two years or more to implement a long-term solution to power outages.

“The Indian government will push through some emergency fixes in response to the recent power outages, which affected 600 million people in northern India, but the much needed long-term solution will take two years or more to put in place,” it said. Fitch expects the Government to immediately implement short-term reforms, such as better grid discipline via increasing incentives and penalties. These will go some way to reduce the risks of such large-scale outages happening again. But significant structural changes are needed and these cannot be made within one or two years, it said.

Fixing the poor financial condition of the utilities so that they can upgrade their infrastructure and improving coal supply for power require long-term measures.

The government has also made some headway in improving the supply of coal though a lot more is needed. Coal India has agreed to enter into fuel-supply agreements with 48 new projects, although with a very low penalty (0.01 per cent) for non-supply.

The government is also trying to facilitate additional supplies of 15 per cent to these projects by asking Coal India to import.

Fitch felt that the power outages would have strengthened the government's mandate to consider more radical options. It expects the government to look at opening up the coal sector to private mining companies and reforming the way it sells new coal blocks.


(This article was published on August 7, 2012)
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