UPDATE 3-India PM tepidly pledges help on chronic power shortages

* Tata, Ambani, other top power company execs meet PM

* Companies seeking better access to fuel, swifter clearances (Recasts, adds details, quotes)

By Sanjeev Choudhary

NEW DELHI, Jan 18 (Reuters) - India's prime minister tepidly pledged help on chronic power shortages strangling economic growth, offering few specifics in a meeting with business leaders in the sector who sought faster coal and gas development and to pass on rising costs.

Electricity shortages are a bottleneck in India, where Prime Minister Manmohan Singh is under pressure for failing to drive bold reforms in power and other sectors, such as allowing private generation firms to pass on higher fuel costs to ensure new plants needed to boost supply are profitable.

"We discussed with him shortage of domestic fuel, cost increase due to imports, financial health of state utilities and environmental clearances," Ashok Khurana, director general of India's Association of Power Producers, said on Wednesday.

He "has given us full assurance to address all our issues in a credible and commercially sustainable way," he said after a group including Tata group Chairman Ratan Tata and Reliance Power Chairman Anil Ambani met Singh at his residence during a long day of meetings in the capital.

Singh's office pledged a "practical, pragmatic and viable solution" to the industry's problems would be found and said a committee would be formed at the secretary level, but offered little in the way of specific solutions.

Singh has made little headway in pushing overall economic reforms halfway through his second term, disappointing hopes for rapid change to an economy constrained by capacity issues.

India does not produce enough power to meet the demands of a fast-growing economy and increasingly affluent population of 1.2 billion people. Outages in big cities, including the capital, are commonplace, and businesses frequently rely on self-generated power.

Coal and natural gas shortages have crimped the rollout of new plants by big producers such as Adani Power and left many existing units running below capacity.

"The government needs to coordinate all its arms if it aims to improve the situation in the power sector," said V. Srinivasan, an analyst with Angel Broking.

India has installed capacity of 187,000 megawatts (MW), about a fifth of what China has, and a peak-hour deficit of about 12 percent. India's power output rose 8 percent to 72.7 billion kilowatt-hours in December from a year earlier.

COAL AND FUNDING

Stagnant domestic output by state-run Coal India, the world's largest coal miner, and lower-than-expected gas production coupled with the high cost of imports has thrown the business plans of generators into disarray.

But as pressure builds on the government, India has raised its coal import target by over a third to about 114 million tonnes in the fiscal year ending in March, though a lack of rail capacity from key ports to end-users remains a constraint.

Coal accounts for more than half of India's power generation and will be required for about 85 percent of a 75,000 MW target for new capacity by 2017, a government draft report said in late 2011.

India has about 10 percent of the world's coal reserves but struggles to provide private players more access to coal blocks and swifter environmental clearances and land acquisition.

Coal Minister Sriprakash Jaiswal said on Wednesday that private sector power firms should lift production at their own mines.

"We can't increase coal production quickly," he said after meeting the delegation, which was ferried between meetings in luxury cars and trailed by a about two-dozen journalists.

"We have asked them to resolve issues and increase output at captive mines."

NOT ENOUGH GAS

India is the world's eighth-largest importer of LNG and the gap between demand and supply is widening, though drilling in coal-methane blocks and more capacity for imports is underway.

But demand is forecast to rise to around 410 million standard cubic metres per day (MMSCMD) by 2020 from consumption of around 177 MMSCMD in 2011, according to ratings agency ICRA, with much of the gap expected to be filled by imports that are more expensive than domestic supplies.

To cover higher import gas import prices, power companies have asked the federal government, in vain, to help free them from fixed sales contracts with state governments so they can pass on costs to consumers.

Losses for distribution firms were estimated at 400 billion rupees ($8 billion) in the year that ended in March 2011, mainly linked to higher fuel costs for gas and coal.

Lower than expected gas output from Reliance Industries-operated D6 block in the Krishna-Godavari (KG) basin, off India's east coast, has also dashed hopes for a spike in domestic supplies.

Banks, already burdened with loans to loss-making state-run electricity distribution firms, are reluctant to lend to proposed power projects that do not have assured fuel supplies, especially new combined-cycle units that can run on gas.

(US$1=50.38 rupees) (Editing by Tony Munroe and Ed Lane)