Indian government's policy measures are helping the power sector as green shoots have started to emerge, believes India Ratings. These policies are directed to solve the fuel risk and poor financial health of state power utilities in 2012-13 and 2013-14.
Two years before the reforms kicked in (2010-11 and 2011-12), were the worst years for the sector due to many reasons like low retail tariff hikes amongst others. “Power entities also suffered due to high debtors for players across the value chain, non-availability of fuel, high interest rates, foreign exchange losses and regulatory risk leading to low investor interest,” said the rating agency.
After two tough years came measures to ease coal availability, which include a Presidential directive issued to Coal India to sign fuel supply agreements with power producers, fast-track mine clearances and action on non-serious captive coal block developers.
India Ratings believes that fuel price risk is likely to be manageable with the formulation of a new standard bidding document with fuel costs passed through, compensatory tariff for select competitive bids and suitable modifications to allow pass-through of imported coal costs in Coal India linkage-based fuel supply agreements.
“The government is also working towards bringing greater transparency in the sector through the constitution of a coal regulator and formulation of a coal block auction mechanism,” the agency said, in a press release.
The state electricity boards have gradually increased tariffs, leading to a gradual recovery. The Cabinet Committee has also approved a financial restructuring package, which was adopted by the states of Haryana, Uttar Pradesh, Rajasthan and Tamil Nadu and Himachal Pradesh.
“This comes with certain pre-conditions like regular tariff rationalisation and a reduction in aggregate technical and commercial losses. India Ratings believes this will alleviate the risks posed by weak state power utilities over the long-term,” said India Ratings.
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