While the government and the ministry of power plan for a huge increase in the country’s generation capacity, financiers like Deutsche Bank point to the worsening financial health of the State Electricity Boards (SEBs), the buyers for most of the power that is to be generated. Deutsche’s November update on infrastructure points out that the average cash collections for SEBs in 2007-08 were lower than those in the previous two years and that the capex being spent on modernising the distribution network has slowed.
The report also points out that state regulatory boards are not allowing a full pass-through of fuel costs, putting greater pressure on the SEBs. A survey of the SEBs and other players by the bank found the sector scored pretty poorly when it comes to cash collections and other such parameters. The report also analyses the latest consultation paper by the Central Electricity Regulatory Commission and points out that, if implemented, the proposed changes in depreciation rates, incentive payments, heat rates and so on will hit the returns of firms like NTPC (500 bps in 2009-10). If, despite all this, Indian power firms have higher valuations than their global peers, the bank says, it is primarily because of the captive power mines they have.
