On policy front, the approval for the formation of 'Cabinet Committee on Investments (CCI)' in December 2012 is a positive development for infrastructure sector. The basic objective of CCI is to enable greenfield projects to get the required clearances in a timely manner, including those related to land acquisition. Its actual efficacy however remains to be seen.
With the objective of improving the commercial viability for the discoms, GoI has notified the financial restructuring scheme in October 2012. While the validity date has now been extended till March 31, 2013 from December 31, 2012, given the several mandatory conditionalities involved, in our view, there could be further delays in submission of the financial restructuring proposal by the discoms, due to challenges in seeking the consent from state governments. Nonetheless, ICRA has already opined that the debt restructuring is inevitable for the stressed utilities, as alternate options are limited, given the tightening of the credit disbursement conditions by lenders. However, timely implementation of this scheme and political will of the state governments to comply with the stipulated conditions would be a key challenge.
Subsequent to ruling by Appellate Tribunal for Electricity (ATE) in November 2011, tariff orders for FY 2012-13 have been issued by State Electricity Regulatory Commissions (SERCs) in almost all the states. This is a key positive development for the sector, given the fact that tariffs were not revised in the past for a prolonged period in some states as well as with significant delays in many other states. Further, tariff petition filing for FY 2013-14 has been done by discoms in about eight states so far, although with delays. Also, a framework for Fuel & Power Purchase Cost Adjustment (FPPCA) has been approved in many of the states in the last 12 month period. Notwithstanding these positives, tariff determination for FY 2012-13 in many states have not been fully cost-reflective so as to avoid a tariff shock, which has led to creation of additional uncovered revenue gaps or 'regulatory assets'. In ICRA's view, the quantum of tariff hikes, the manner in which regulatory assets are proposed to be recovered and timelines in terms of filing the tariff petitions and finalisation of tariff orders remains critically important, going forward.
In respect of long term power procurement by discoms through competitive bidding, overall progress continues to remain slow. Further delays were seen in the ongoing plans of states such as Rajasthan, Karnataka and Maharashtra for Case 1 and Case 2 based bidding. This was mainly on account of the continuing challenges both for the procurers for project planning in Case 2 bidding as well as for the developers to participate in Case 1 bidding. Further, the increased fuel supply risk in the sector is also evident from the high level of tariff bids as quoted recently by the bidders for the bids submitted in case of Case 1 bidding' process for power procurement of 6,000 MW by Uttar Pradesh Power Corporation Ltd (UPPCL) reported to be in the range of Rs 5 to Rs 6/kWh.
During the period of April December 2012, power sector has witnessed the overall capacity addition of 11,076 MW out of which about 80 per cent is coal based and about 67 per cent of the same has been commissioned by the private sector. On all India basis, peak deficit and energy deficit during April December 2012 stood at 9.0 per cent and 8.7 per cent respectively, while among the regions, peak power deficit levels varied between 1.5 per cent and 19 per cent and within the same, average level of power deficit were the highest at 15.2 per cent for southern region, largely on account of transmission constraints and fuel shortages.
With a continued decline in domestic gas availability mainly led by reduction in the gas output from RIL's KG gas basin, PLF level for all India gas based capacity has come down to 43.5 per cent in April December 2012 as against that from 59.9 per cent in FY 2011-12. For private sector gas based plants, PLF level have dropped to 25 per cent in December 2012 from that of 55 per cent in April 2012. With continuing uncertainty over the availability of domestic gas, debt restructuring for some of the upcoming gas based projects in the southern region seems inevitable. With continued domestic coal shortages, dependence on coal imports has been increasing.
For the first half of FY 2012, steam coal imports have already increased to 42 MMT as against that at 55 MMT in the whole FY 2011-12. Given that the dependence on imports would continue, a sharp contraction in coal price level by around 20 per cent between April 12 & December12, is positive for the domestic power sector, although partially offset by depreciation of INR against USD, as it would lead to a reduction in cost of power generation to some extent depending upon the mix of imported coal and is also more favourable for merchant power projects based on imported coal. Nonetheless, domestic power sector remains exposed to risk of volatility in coal price internationally. The coal price pooling framework is currently being discussed by Ministry of Power & CEA and while this would be a positive for the power stations which are and to be commissioned after April 2009, there remains an uncertainty over the implementation of the same, given the strict opposition expressed by the state governments in the eastern region.
Subsequent to release of the performance audit report by Comptroller & Auditor General (CAG) in August 2012, Inter-Ministerial Group (IMG) was constituted to review the development of coal blocks allotted. Thereafter, based on the recommendations of IMG, Ministry of Coal, GoI in turn has so far cancelled 17 coal blocks allotted during the period between October and December 2012, mainly on the grounds of both the non-performance by the companies in meeting the milestones and significant delays in both the development of mines and end-use project. Such de-allocated blocks are likely to be re-allocated through competitive bidding route. On the contrary, while the rules of Auction of coal blocks through competitive bidding', are in place since February 2012 and has also identified 54 blocks which are to be awarded through auction process, the overall guidelines for bidding/auction for such blocks and the norms for fixation of reserve and floor prices are yet to be finalised by the Ministry of Coal. Even though auction route is implemented, in our view, the extent to which the statutory clearances and 'explored nature' of the blocks are in place for blocks to be auctioned would only enable the bidders to develop the mines on fast track basis.
The recent revision in tariffs from a ceiling of Rs 2.34/Unit to cost-plus' asis in case of Lanco Amarkantak Power Ltd (LAPL) PPA with Power Trading Corporation (PTC), as per the orders issued by Madhya Pradesh Electricity Regulatory Commission in December 2012, is a positive development, which could set as a precedent for tariff renegotiation. The tariff revision was allowed by MPERC, both on the grounds of changes in operating environment related to fuel supply and pricing and also, in line with the terms of mutual settlement to resolve the tariff issues as agreed between LAPL, PTC and end consumer, being Madhya Pradesh Power Management Company Ltd (MPPMC). However, CERC is yet to decide in respect of tariff renegotiation requests made by private IPPs including namely, Coastal Gujarat Power Ltd and Adani Power Ltd.
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