Rising coal costs to hit India's power projects: Fitch

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

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

Coal accounts for 55 per cent of India's power generation capacity of 182,344 megawatts.

But while the country holds 10 percent of the world's coal reserves, power companies often struggle to access local supplies due to environmental and land acquisition delays, forcing expensive imports.

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, the ratings agency said.

"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," Venkataraman Rajaraman, director at Fitch's Global Infrastructure group, said in a statement accompanying a report on the industry.

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

Asia's third-largest economy has a peak-hours power shortage of 13 per cent of requirements as rising demand from industry, homes and shopping malls outstrips capacity growth, but investments in the power sector have been slowing.