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Money Apr 4, 2012

CIL is losing but power stocks are having a ball on the St

By Rajanya Bose

Power sector woes are all but known with Coal India struggling to supply enough fuel for the sector. And with state electricity board losses soaring to Rs 1 lakh crore, states and the Centre are now fighting over who would foot the bill. In such a scenario, generation and distribution of power companies suffers as does their cash flow and timely payment.

Projects like in Mundra and Sassan have been shut down due to high cost. Reuters

The government's invoking of Presidential directive to CIL to sign long term fuel supply agreements (FSA) with power producers is certainly a bliss. Independent power producers (IPPs) have been having tough time getting the coal as imported coal has become expensive. Indonesia, the biggest source for imported coal in India has levied an export duty ,which means no significant discount is available there compared to global prices.

IPPs were buying more coal in e-auctions and since most of them had bid aggressively for their power plant projects, big power projects were becoming unviable, for example, Adani Power's Mundra project and Reliance power's Krishnapatnam Plant.

Now with better assurance of CIL's supply of coal, power producers could rework their cost and speed up more power projects. Projects like in Mundra and Krishnapatnam have been halted due to high cost. If the SEBs were to relook the extremely low prices at which these IPPs had agreed to sell power, power supply could be brought back on track.

Tamil Nadu has raised power tariffs by 37 percent and this could be the first step at the right direction in pricing reforms. And that's why perhaps the power companies are partying on the Street today.

Adani Power is up 3.13 percent, Tata Power is up 1.6 percent, Reliance Power is up 1 percent, Torrent Power is up 1.34 percent and GVK Power & Infrastructure is up 0.85 percent.

by Rajanya Bose

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