Ratings agency Fitch said the rising cost of imported coal, coupled with a weakening rupee, could force some Indian power projects to default on their debt obligations.

Fitch estimated that the average cost of generation could rise to INR 4.41 (8 cents) per kilowatt hour for projects relying entirely on imported coal, from the current average of 2.29 rupees, if current trends continue.

The agency said that the higher costs could put massive pressure on plants that cannot pass on higher fuel costs to customers, and in some cases this could render projects unviable.

Mr Venkataraman Rajaraman director at Fitch's Global Infrastructure group in a statement accompanying a report on the industry said that "Financial margins of power projects will also come under severe pressure in the absence of a significant tariff revision or injection of additional sponsor equity.”

Coal accounts for 55% of India's power generation capacity of 182,344 megawatts. But while the country holds 10% of the world's coal reserves, power companies often struggle to access local supplies due to environmental and land acquisition delays, forcing expensive imports.

Most new Indian power projects are dependent on imported coal and have seen their costs jump over the past year.

(Sourced from ET)