Power reforms may derail, feels industry

The announcement in the Common Minimum Programme (CMP) that the Electricity Act, 2003, will be reviewed has created confusion in the power industry.

Fears have been expressed that reforms like unbundling of state electricity boards may take a backseat.

"This is clearly backtracking on reforms. How will important reforms like privatisation of distribution happen now if there is simultaneous talk of stopping the unbundling of the state electricity boards," says Urmik Chhaya, an analyst at Karvy Stockbroking.

Even before the CMP was announced, the markets today gave the thumbs down to power sector stocks. Most power sector stocks were under selling pressure and their prices had been drifting lower in the last one week over concerns about whether the new government would pursue power sector reforms.

Tata Power is currently trading at Rs 296.35, down 4.86 per cent from Rs 311.50 on May 20, Neyveli Lignite is down 1.96 per cent to Rs 47.45, Gujarat Ind Power is down 3.03 per cent to Rs 47.95 and Numeric Power Systems is down 6.45 per cent to Rs 117 in the last one week.

Even Reliance Energy which was under selling pressure recovered in the last few trading sessions from a low of Rs 525.29 on May 20, 2004 to today's close of Rs 537.90.

"It is very difficult to comment at this stage till we know what exactly is being reviewed. The Act by itself was however never going to be enough for reforms in the sector unless it was coupled with accelerated open access in distribution," said F A Vandrevala, managing director of Tata Power Company.

Ravi Agarwal, associate director at ANZ Investment Bank who has worked on various power sector deals, said, "Any rollback will have an adverse effect on the power sector and in turn will affect the Indian economy."

Motilal Oswal, chairman and managing director of Motilal Oswal Securities, said, "The CMP suggests that the new government is committed to the reforms process. Private participation in power distribution and generation should be good news for the sector. However, the review of the Electricity Act is an area of concern and can send out negative signals."