The declining health of Indian Power Sector over the last couple of years has started to show signs of recovery with improvement in overall electricity generation and reduction of peak deficits in the preceding months.
Though the balance sheets of the companies are still a cause for worry, the shift in policies and regulatory measures would turn out to be a boon for the sector, believe experts.
The Central Electricity Authority (CEA) data reveals that the power sector, which was burdened with higher imported coal prices, lower plant load factor (PLF) and non-availability of fuel (coal and gas), has seen improvement in the months of September, October and November. The overall electricity generation improved by 5.8 per cent to 7,720 crore units year on year (y-o-y) during November. Higher production from the thermal power plants and improved generations from the hydro power plants are believed to be major contributors to the growth. The PLF has also improved during the period to 65 per cent compared with 62 per cent in the same period last year. However, there are still issues of availability of fuel for the commissioned capacities, which once resolved would further help improve the PLFs in coming months.
Experts also believe that Coal India, India’s major coal producer, is likely to come close to its target production of 492 million tonne for this financial year. The company in the last eight months has fallen short by 15 million tonnes from its target largely due to mining strike and monsoon. However, it is expected to grow by 8 per cent in the remaining four months to achieve around 482 million tonnes of production, which would give enough confidence to companies having fuel supply agreements with CIL.
Besides, the clearances that have started to come for projects mired in issues related to go–and– no-go-area, environment and land acquisition related concerns are good indications for the industry.
Rupesh Sankhe, senior analyst with Karvy Stock Broking says the project clearances for around Rs 90,000 crore worth projects held up due to various regulatory and environment related issues would help in reviving the stuck capital expenditure into the sector. Moreover, the financial health of State Electricity Boards (SEBs) that are beginning to show improvement after the restructuring and the tariff hikes — in around 21 states — are very good indicators that things are shaping up for better,” Sankhe added.
It is a general perception that companies would continue to generate higher electricity in the coming months to elections and SEBs would continue to buy with elections round the corner. SEBs may even buy in the spot market to provide round the clock supply. This would help companies to source imported coal even if it is priced little higher since the merchant rates are much better at present.
The drop in international prices of coal of various gross calorific values (GCV) has also helped Indian companies to tie the supply side concerns in the last few months. According to experts, the landed price of coal, excluding the rail freight, has dropped to $40-$65 per tonne depending on the GCVs. It has led companies to import higher GCV coals in recent times rather than buy similar variety coal from CIL, which are comparatively priced higher. Indian companies use a blend of Indian and international coals to cut on costs.
The recent steps by government to improve the overall capacity and ensure availability of coal to the power producers are also seen as steps to propel the industry out of woods. Government recently launched two new ultra mega power projects in Bedabahal in Odisha and Cheyyur in Tamil Nadu. Although the progress on earlier four UMPPs is not encouraging with only two UMPPs operational and unresolved issues on tariff affecting the bottom line of one of the companies.Tata Power is still battling for higher compensatory tariff on account of higher imported fuel cost.
In order to resolve the existing shortage of fuel, government is also planning to invite bids from private sector companies for the development of coal mines on public private partnership basis to ensure there are multiple producers of coal to meet the growing demand. India at present has a shortage of 200 million tones of coal that is largely met through expensive imports. In 2012-13, total demand for coal was around 773 million tonne while domestic supply was only 567 million tonne.
Like crude oil, imported coal puts heavy pressure on maintaining the current account deficits at manageable levels. A nine-member committee at the prime ministers office has recently decided to cut the import of coal to cut the current account deficit. It would also mean higher production within the country to address the domestic issues.
All put together, we can see some improvements in the sector provided the basic issues are resolved in time-bound manner. The issues of availability of coal, meeting peak shortages, regular tariff hikes to meet the increasing cost of the SEBs and improvement in generation capacities across the thermal, hydro, renewables and nuclear segments are a must. The participation of the private sector is urgently required not just in production of electricity, but also in the production of vast available resources like coal to meet the demand.
A report by Motilal Oswal Securities on Power sector states that the sector has begun to witness several initiatives by authorities to address concerns on SEBs, fuel supply pacts and PPAs. It would, however, take a while before clarity on several issues emerges. In this environment, power companies "continue to prefer CPSUs, which are relatively better positioned on these fronts”, according to the report.
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Pursuing its overseas expansion strategy, Coal India Ltd (CIL) is actively looking at as many as five proposals for acquisition of mines in Indonesia.
