29 Jun 2016
A recently announced policy measure allowing flexible sourcing of domestic coal as well as guidelines for procurement of short term power through reverse auction will lead to reduction in of power purchase costs for distribution companies and lower electricity bills for consumers. Continued improvement in domestic coal availability is a positive for the sector since it has substantially mitigated both coal supply risk and the risk of under¬recovery in fuel cost. The risk was on account of dependence on costlier imports for projects with competitively bid tariffs. On the negative side issue of tariff compensation for coal fired independent power producers affected by coal price hike continues to remain unresolved.
This apart, ICRA notes with concern that only 16 out of 29 states have issued tariff orders for FY 2017 and that some of the states which haven't issued tariff orders include states with highly financially challenged utilities such as Tamil Nadu, Uttar Pradesh and Rajasthan. "Flexible utilisation of coal linkages by state and central generation utilities would result in an optimal utilisation of the supplies from mines and lower transportation cost of domestic coal. Distribution utilities will benefit from competitive & transparent price discovery in reverse auction based electronic platform for procurement of short term traded power", said Sabyasachi Majumdar, senior vice president, ICRA Ratings. However, some of these cost savings could be offset by a recent price hike by Coal India which is expected to increase cost of power generation by 9¬10 paisa per unit for coal based independent power producers. Much of this is likely to be passed onto discoms. Thus, timely pass¬through by way of fuel and power purchase cost adjustment framework by state owned discoms remains important from their cash flow perspective.
ICRA notes that the issue of tariff compensation for affected thermal independent power producers continue to remain unresolved. While Appellate Tribunal for Electricity's acknowledgment of tariff compensation issue under 'Force Majeure' and its direction to CERC to settle the same in a time¬bound manner is a positive for Coastal Gujarat Power Ltd and Adani Power Ltd; timelines for resolution still remain uncertain. ICRA also noted that timely implementation of UDAY by discoms in non¬participating states remain critical for sustained improvement in the financial position of the discoms. "Timely fund flow from respective state governments to discoms in Bihar, Haryana, J&K, Rajasthan and Uttar Pradesh would remain extremely important," Majumdar said. On the regulatory front, state power regulators in only 16 out of 29 states have issued tariff orders for state owned discoms so far in FY2017.
This implies a modest progress in issuance of tariff orders for the year. Moreover, tariff orders are pending in large states such as Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal for FY2017 and it is a matter of concern. It is also noteworthy that of these states, Rajasthan, Uttar Pradesh and Tamil Nadu have substantial revenue gap and accumulated debt levels. The extent of average tariff hike, based on the tariff orders issued in 16 states, is at a moderate 5%, for FY2017.
Source: Economic Times
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