So­lar auc­tion threat­ened as Tata says plans ‘not bank­able’

The Pak Banker - - Company& -

NEW DELHI: In­dia's first auc­tion of so­lar power per­mits may get de­railed as plant builders say bor­row­ing costs are too high to fi­nance the projects, a key part of govern­ment ef­forts to re­duce oil im­ports.

Tata Power Co., In­dia's biggest non-state power de­vel­oper, said it isn't par­tic­i­pat­ing in the auc­tion be­cause it would have trou­ble rais­ing loans. Azure Power said it has found an­other way to fund its project be­cause of unattrac­tive ru­pee lend­ing terms. De­vel­op­ers of­fer­ing to sell their elec­tric­ity at the cheap­est rate will be picked and will gain pref­er­en­tial tar­iffs and a des­ig­nated buyer of their power, ac­cord­ing to the govern­ment.

In­dia needs al­ter­na­tive en­ergy sources as the cost of oil surges to a two-year high, threat­en­ing Prime Min­is­ter Man­mo­han Singh's ef­forts to curb the bud­get deficit and rein in in­fla­tion. The govern­ment is es­ti­mat­ing a cost of fund­ing for the in­dus­try at 13.3 per­cent, com­pared with 10-year bond yields of 8.84 per­cent for Ru­ral Elec­tri­fi­ca­tion Corp., In­dia's state-con­trolled lender to power projects.

"We're not com­fort­able," Ban­mali Agrawala, Tata Power's ex­ec­u­tive di­rec­tor of strat­egy and busi­ness devel­op­ment, said in an in­ter­view in Mum­bai on Nov. 26. "We would not want to go and win a project with a power pur­chase agree­ment that's not bank­able."

In­dia, which has about 300 sunny days a year on av­er­age, has col­lected bids un­der a govern­ment pro­gram to gen­er­ate 20 gi­gawatts of power from the sun by 2022, equiv­a­lent to 12 per­cent of the nation's cur­rent gen­er­a­tion ca­pac­ity. Win­ners may be an­nounced as soon as the end of the year.

As the world's fourth­largest con­sumer of oil, In­dia im­ported 70 per­cent of its crude last year, ac­cord­ing to the U.S. En­ergy Depart­ment. Im­ports of the com­mod­ity surged 41 per­cent in the first 10 months of this year to $82.1 bil­lion, ac­cord­ing to data com­piled by Bloomberg. Oil touched $90.76 a bar­rel yes­ter­day on the New York Mer­can­tile Ex­change, the high­est since Oct. 8, 2008.

Else­where in In­dian credit mar­kets, In­dian 10-year govern­ment bonds rose to­day and the ru­pee fell af­ter six days of gains. GAIL In­dia Ltd., the nation's largest nat­u­ral-gas dis­trib­u­tor, is rais­ing 7.5 bil­lion ru­pees sell­ing 10-year bonds.

The yield on the 7.80 per­cent note due May 2020 fell one ba­sis point to 8.09 per­cent, ac­cord­ing to the cen­tral bank's trad­ing sys­tem. In­dia's three­year bond yield was 7.5 per­cent, while rates on sim­i­lar­ma­tu­rity notes in Brazil were at 12.34 per­cent. Com­pa­ra­ble Chi­nese yields were 3.09 per­cent and 6.96 per­cent in Rus­sia.

The dif­fer­ence in yields be­tween In­dia's debt due in a decade and sim­i­lar-ma­tu­rity U.S. Trea­suries was 489 ba­sis points, the slimmest mar­gin since the first week of Au­gust. The mea­sure av­er­aged 317 ba­sis points dur­ing the past decade.

The cost of pro­tect­ing against a debt de­fault by govern­ment-owned State Bank of In­dia, which some in­vestors per­ceive as a proxy for the nation, has in­creased 55 ba­sis points this year to 173, ac­cord­ing to data provider CMA. Such swaps usu­ally pay the buyer face value if a bor­rower fails to meet its obli­ga­tions, less the value of the de­faulted debt, and they rise as per­cep­tions of credit qual­ity de­te­ri­o­rate.

In­dia's ru­pee de­clined 0.9 per­cent to 45.03 per dol­lar, the most since Nov. 15. The cur­rency has ad­vanced 2 per­cent this month, the best per­for­mance among Asia's 10-most traded cur­ren­cies.

GAIL's bond of­fer­ing will close to­day, two peo­ple fa­mil­iar with the mat­ter said yes­ter­day. The bonds have a call op­tion at the end of the sev­enth year, said the peo­ple, who de­clined to be iden­ti­fied as the in­for­ma­tion is pri­vate.

Singh's govern­ment sub­si­dizes diesel, kerosene and cook­ing gas to cap in­fla­tion, adding to the bud­get deficit that he is aim­ing to lower to 5.5 per­cent of gross do­mes­tic prod­uct in the year end­ing March 31, from an es­ti­mate 6.9 per­cent last year.

The so­lar auc­tion aims to avoid the prob­lems of Euro­pean gov­ern­ments, in­clud­ing Spain, Ger­many and France, which are strug­gling to curb mount­ing sub­si­dies to so­lar elec­tric­ity sup­pli­ers. Spain owes about 14.6 bil­lion eu­ros ($19.3 bil­lion) to power com­pa­nies for the short­fall be­tween the cost of sup­ply­ing power and what the govern­ment promised to pay.

Europe's debt cri­sis forced Spain to freeze the start of a plan last month to sell power rev­enue bonds in­tended to re­duce that deficit.

In­dia will guar­an­tee that so­lar projects get paid for the power they pro­duce to en­cour­age banks to lend, said Deepak Gupta, sec­re­tary of the Min­istry of New and Re­new­able En­ergy. The govern­ment also asked a group of len­ders headed by the State Bank of In­dia to look for ways to cut fund­ing costs, he said.

"The de­vel­oper must be paid, that we will en­sure," he said in an in­ter­view in New Delhi on Nov. 30. "The govern­ment of In­dia is guar­an­tee­ing this. The banker can re­duce his in­ter­est rate if he knows that if there's a prob­lem, there's a guar­an­tee."

In­dia's so­lar power pro­duc­ers may need as much as $62 bil­lion of in­vest­ment to 2020 based on cap­i­tal spend­ing costs of 140 mil­lion ru­pees per megawatt, ac­cord­ing to Bharat Bhushan, an an­a­lyst with Bloomberg New En­ergy Fi­nance in New Delhi. About $3.1 bil­lion may be needed for the first phase. The es­ti­mates may change depend­ing on vari­a­tions in equip­ment costs and tech­nolo­gies, Bhushan said yes­ter­day.

The Cen­tral Elec­tric­ity Reg­u­la­tory Com­mis­sion, which sets bench­mark power tar­iffs, as­sumes a 13.3 per­cent cost of debt for re­new­able en­ergy projects built in the fis­cal year end­ing March 2012. Av­er­age In­dian dol­lar debt yields are about 5.07 per­cent, ac­cord­ing to HSBC Hold­ings Plc in­dexes. -Bloomberg

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