Green shoots emerge in power sector: India Ratings

Mumbai: The government's policy measures aimed at improving fuel availability and the financial health of state utilities seem to have helped revive the power sector, according to India Ratings & Research.

"Green shoots are emerging in the power sector due to the Indian government's FY13 and FY14 policy measures towards solving two key issues - fuel risk and poor financial health of state power utilities," the Fitch Group company said in a statement.[caption id="attachment_1342013" align="alignleft" width="380"] Ushering hope. Reuters[/caption]

According to the firm, the past three years (FY11-FY13) were the worst for the sector due to the weak financial health of state utilities on account of tariffs that did not reflect cost, reliance on short-term power that is usually costlier, high aggregate technical and commercial losses and delayed receipts of subsidy.

Power entities had also suffered due to factors such as lack of fuel, high interest rates, foreign-exchange losses and regulatory risk leading to low investor interest, it said.

Initiatives taken to improve coal availability for power plants include the the Presidential directive issued to Coal India to sign fuel supply agreements (FSAs) with power producers, fast-tracking mine clearances and action against non-serious captive coal block developers.

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The risk of fuel prices is likely to become manageable for utilities after the government allowed them to pass on higher costs of imported coal to customers, India Ratings said.

India Ratings said the government is working towards bringing greater transparency in the power sector through the constitution of a coal regulator and formulation of a coal block auction mechanism.

Meanwhile, state electricity regulatory commissions have allowed tariff hikes to distribution companies over FY13 and FY14, a gradual recovery of regulatory assets and monthly variable cost adjustments.

Besides, the government has also approved a financial restructuring package for debt-laden state power utilities, which was adopted by Haryana, Uttar Pradesh, Rajasthan, Tamil Nadu and Himachal Pradesh.

"This comes with certain pre-conditions like regular tariff rationalisation and a reduction in aggregate technical and commercial losses. India Ratings believes this will alleviate the risks posed by weak state power utilities over the long term," according to the statement.

PTI