New Delhi: The Budget proposals for the power sector are directionally correct but lack specifics to support a meaningful improvement in the short-term, rating agency Fitch said on Wednesday.
Fitch Ratings said there are entrenched structural issues affecting the performance of the power sector of India and the solution would require a sustained and disciplined policy focus.
"There is no immediate rating impact on any of the Fitch-rated power companies - NTPC Limited, NHPC Limited and Power Grid Corporation of India Ltd," the rating agency said in a statement.
Finance Minister Arun Jaitley in the Budget for 2014-15 announced several measures for the power sector including an extension of the tax holiday for power projects to March 2017 from March 2015.
"We consider it to be positive for investment activity," Fitch said.
The budget also called for the provision of adequate quantity of coal to power plants commissioned by March 2015. However, the budget lacked very specific measures detailing how this will be achieved, the statement added.
"It will not be possible to raise the production of coal significantly within a year. Aside from inadequate domestic production, infrastructure bottlenecks such as rail infrastructure also continue to act as a constraint to ensuring adequate coal supplies to power plants," Fitch added.
Domestic coal production is much lower than the requirements of the power sector, and hence we think the coal shortage at various power plants will continue, it further added.
There needs to be a sustained and long term plan in order to consistently increase domestic coal production, it said.
The entire ecosystem of the power sector - from generation to distribution - needs to be strengthened. The financial health of the various state utilities needs to be improved through tariff rationalization and by addressing transmission and distribution losses.
