July outages underline need for urgent infra funding: S&P

A week after rating agency Fitch showed optimism in its outlook on India’s power sector,Standard & Poor’s (S&P) today called for an urgent need to increase funding to the sector.

Written by ENS Economic Bureau | New Delhi | Published:August 9, 2012 1:16 am

A week after rating agency Fitch showed optimism in its outlook on India’s power sector,Standard & Poor’s (S&P) today called for an urgent need to increase funding to the sector.

In its report ‘Adequate Infrastructure Is Essential To Lighten India’s Power Woes’,S&P highlighted the recent collapse of power grids leaving the north and eastern parts of the country without electricity for several hours.

“The blackout was,in our view,a consequence of capacity growth and infrastructure improvements that severely lag the country’s mushrooming demand for power,” said S&P’s credit analyst Rajiv Vishwanathan.

While Fitch had said the outlook for the industry is stable mainly on the back of some progress on the fuel availability issues and the possibility of debt restructuring of seven state power utilities,S&P said the weak credit quality of downstream distribution companies is a major hindrance to investment in the power sector.

The report said the government is not placing enough focus on improving the country’s inadequate transmission and distribution infrastructure,particularly at the state level.

Subsidies on power tariffs and free power to certain sections of the population have widened the chasm between tariff revenue and the cost of power supply to distribution companies.

The report notes that some states have taken steps to increase distribution tariffs. However,due to the slow pace of implementing tariff reforms,only a gradual improvement in the finances of state utilities may be possible.

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