Steep hikes in tariff effected in many states in recent past and Centre's debt restructuring of debt-laden State Electricity Boards (SEBs) notwithstanding, an Icra report has said that the proof of these measures lies in actual implementation.
Noting that the formation of the Cabinet Committee on Investments (CCI) is a big positive for the power sector as many large power projects are still on paper for want of green clearances and lack of land availability, Icra analysts Sabyasachi Majumdar and Girishkumar Kadam said the CCI should be able to clear greenfield projects in a timely manner.
"However, its (CCI's) actual efficacy remains to be seen," they said.
On rescheduling of the validity scheme to March 31 from December 31 last, the report says there could be further delays in submission of the financial restructuring proposal by discoms, due to challenges in seeking the consent from states.
"Nonetheless, the debt restructuring is inevitable for the stressed utilities, as alternate options are limited, given the tightening of loan conditions by lenders. However, timely implementation of this scheme and political will of the states to comply with the stipulated conditions would be a key challenge," according to the report.
Lauding recent steep tariff revisions by most of SEBs following the ruling by the Appellate Tribunal for Electricity (ATE) in November 2011, the report says this is "the key positive for the sector, given the fact that tariffs were not revised in the past for a prolonged period in some states as well as with significant delays in many other states."
Tariff petition filing for FY14 has been done by eight discoms so far. Also, a framework for fuel & power purchase cost adjustment has been approved in many states in the past 12 months. But it warns that notwithstanding these positives, tariff determination for FY13 in many states have not been fully cost-reflective so as to avoid a tariff shocks, which has led to creation of additional uncovered revenue gaps or "regulatory assets".
The report says, "the quantum of tariff hikes, the manner in which regulatory assets are proposed to be recovered and timelines in terms of filing the tariff petitions and finalisation of tariff orders remains critically important, going forward."
The report further says the progress on long-term procurement by discoms through competitive bidding remains slow. "Further delays are seen in the ongoing plans of Rajasthan, Karnataka and Maharashtra for Case 1 and Case 2 based bidding, mainly on account of the continuing challenges both for the procurers for project planning in Case 2 bidding as well as for the developers to participate in Case 1 bidding", it said.
During the April-December 2012 period, the power sector has witnessed an overall capacity addition of 11,076 mw, 80% of which is coal-based, with 67% of the additional being done by the private sector. On a national basis, peak deficit and energy deficit during April-December 2012 period stood at 9% and 8.7%, respectively, says the report.
With a continued decline in domestic gas availability, the plant load factor (PLF) level for all gas based capacity has come down to 43.5% in the April-December 2012 period as against that from 59.9% in FY12, it said.
Against this, for the private sector gas-based plants, PLF level have dropped to 25% in December 2012 from that of 55% in April 2012.With continuing uncertainty over the availability of domestic gas, debt restructuring for some upcoming gas-based projects in the South seems inevitable. With continued domestic coal shortages, dependence on coal imports has been increasing. For the first half of FY12, steam coal imports have already rose to 42 mt as against that at 55 mt in FY12.
Given that the dependence on imports would continue, a sharp decline in coal prices by around 20% during April-December 2012, is positive for the domestic power sector, although partially offset by depreciation of the rupee, as it would lead to a reduction in generation cost to some extent depending on the mix of imported coal and is also more favourable for merchant power projects based on imported coal.
Nonetheless, domestic power sector remains exposed to risk of volatility in coal price internationally, the report added.