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Improvement in fuel availability as well as the financial health of distribution companies has helped the power sector but certain concerns continue to be a drag, India Ratings & Research said today.
It assigned a stable to negative outlook to the power sector for financial year 2014-15.
The outlook reflects the pending policy level issues, manifestation of risks undertaken in earlier years, mismatches in coal demand and supply and continued tariff pressures, India Ratings said in a statement.
Part of the Fitch Group, the agency has maintained Stable Outlook on power entities for the next fiscal.
The Outlook reflects their continued ability to manage the issues associated with fuel and state power utilities due to a favourable tariff mechanism, their comfortable liquidity and support from the central and state governments.
The agency said the increased generation is expected on account of higher domestic coal availability post government initiatives in the coal sector, and higher availability and acceptability of imported coal than before.
Power generation could also improve on an easing of liquidity situation at the power utility level post financial restructuring package (FRP) implementation as it would increase the ability to buy power, it added.
On Ultra Mega Power Projects, the final price bids for 4,000 MW each project at Odisha and Tamil Nadu, expected next month, are also being seen as a positive sign.
"As far as UMPPs are concerned they will give a fillip to the sector," Salil Garg, Director India Ratings & Research told PTI.
Meanwhile, the report added: "Moderate demand from the manufacturing segments could lead to the energy deficit remaining at 4.5% in financial year 2014-15.
Given that general elections are scheduled for mid-2014, many states could defer tariff finalisation or even consider reducing tariffs mainly through increasing subsidies, it further added.
Central Electricity Regulatory Commission (CERC) in its draft guidelines for 2014-2019 has changed the basis for calculating incentives and disincentives and this could impact the return on equity earned by thermal-based central generating stations.
