Painting a gloomy picture of the power sector, Fitch Ratings said that a slew of factors, including pricier fuel and higher interest rates, will result in a slowdown in the launch of new power generation projects in 2012.

In its '2012 Outlook: Indian Power' report, global ratings agency Fitch said the power sector would remain exposed to both fuel availability and price risks during 2012.

Fitch said that "Launch of new generation projects will slow down in 2012 because of lower investor interest over fuel availability, softening of merchant power prices, higher fuel costs, higher interest rates and slow progress on reforms at distribution level.”

About 8,000 to 10,000 MW of new capacity is expected to be added this year.

Mr Salil Garg director of ratings agency Fitch's Asia Pacific Utilities team told PTI that "Fresh investment is unlikely to pick up [power sector] in 2012.”

Furthermore, access to capital would be restricted for weaker entities, including State Power Utilities and greenfield projects.

According to the report, domestic fuel availability would be low compared to the rising demand from power projects on account of environmental and land issues faced by Coal India.

Against this backdrop, power project developers would be increasingly dependent on imported coal.

The report noted that “However, the cost of imported coal and boiler design will play an important role in deciding the overall use of imported coal and hence, the overall capacity that can be commissioned.”

Fitch pointed out that the financial profile of SPUs is weak due to the lack of cost reflective retail tariffs, delays in receipt of subsidy payments and high transmission and distribution losses.

The overall book losses of all SPUs stood at INR 29,500 crore in FY10, compared to just INR 7,000 crore in FY06. Most of the losses were in the power distribution segment.

(Sourced from ET)