Shares of power cos take a beating as bank loans to discoms dry up…

• Alarmed by the critical financial condition of state-owned power distribution companies, investors have started dumping shares of power companies putting downward pressure on their prices. The decline in power companies' share prices is much steeper than the general fall in stock prices. This is evident if one goes by the NSE's infrastructure index which comprises power companies.
• The hardest hit are companies engaged in power trading business. The poor finances of state utilities have led investors to sell off stocks of power companies as a precaution, which has resulted in decline in prices. For example, the share price of PTC India fell by as much as 32% between August 22 and November 22 at the NSE. Lanco Infratech's share price declined 27% during the same period. Adani Power's stock price declined 12% while NTPC's lost 11% during the period. While PTC India is directly exposed to risks in the power trading business, Lanco, Adani and NTPC undertake power trading business through subsidiaries. Share prices of Reliance Power and PowerGrid have not seen any sharp declines during the period but their scrip has remained under pressure.
• Power trading companies like PTC India and NTPC Vidyut Vyapar Nigam are unable to get timely payment from states like Tamil Nadu and Uttar Pradesh, where discoms' losses have reached unmanageable levels. These discoms owe more than R1,000 crore to PTC India alone for power supplied by it. This has forced power traders to raise fresh capital for meeting their working capital requirement.
• This despite the fact that in a watershed development, state electricity regulatory commissions (SERCs) have recently given undertaking to ensure annual tariff revision ,if necessary, by using their suo motu powers. The apex electricity regulator Appellate Tribunal for Electricity has also ruled that SERCs do have suo motu powers to revise tariff and they must exercise that authority. Tamil Nadu discom has sought 38% hike in tariff, which should lead to additional cash flow of R8,200 crore to the discom. Uttar Pradesh has assured bankers that it would increase tariff by more than 30% once assembly polls are over.
• Industry experts say that investors have overreacted in panic as the fundamentals of the sector remain robust despite the problems in power distri bution. PTC India has been trading power since 2000. Till March this year, it was able to recover 100% of its R4,000 crore dues. "Financial health of discoms will improve due to the recent policy and regulatory initiatives," Pramod Deo, chairman, central electricity regulatory authority, said. "Policy makers have begun work on structural solutions to pressing issues. But these could take a while to implement," RBS Bank said in a recent update to investors.
• "Share prices of power companies are under pressure as payment to private power generators from discoms is not smooth. However, the scenario could change if reforms are implemented by states in the true spirit," HD Khunteta, chairman and managing director, Rural Electrification Corporation, said. "Scenario regarding concern on account of receivables from distribution utilities should soon change in view of SERCs taking steps to increase tariff. Also, APTEL's judgement, based on power ministry's r equest, exhorting SERCs to suo motu initiate proceedings for tariff revision in case there is delay in tariff filing is very welcome step in this regard," Tantra Narayan Thakur, chairman and MD, said. Due to pressure from state governments, discoms are reluctant to approach regulators for tariff revision.

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