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Indian Power - Coal linkages: Beats from the busbar*
Event
Over the past week, we have spoken to managers/operators at 22 central and
state government owned coal-fired power plants to get their view on coal
supply from linkages with Coal India (CIL). Two key takeaways were:
⇒ IPPs with upcoming capacities are at much greater risk of not getting
coal than existing government plants as the former do not have FSAs
with high penalty rates (~90%).
⇒ ~50% of respondents noted that they see supply constraints over the
next two years and 80% of those highlighted that rail infrastructure was
the main issue. This was more pronounced in southern states.
This again highlights the dangers of upcoming IPP projects reliant on coal
linkages. We prefer those stocks with a competitive advantage in fuel
sourcing including Tata Power (TPWR IN, Rs1,233, OP, TP: Rs1553), Adani
Power (ADANI IN, Rs125, OP, TP: Rs146) and Jindal Steel and Power (JSP
IN, Rs648, OP, TP: Rs962).
Impact
Speaking to the operators: We contacted managers/operators responsible
for coal procurement at over 22 central and state government linkage-based,
coal-fired power plants representing 35% of India’s government owned coalfired
plants and over 50% of NTPC’s coal-fired capacity.
IPPs at greater risk: Most of the respondents had no issue with their current
coal supply, highlighting that high penalty rates in their fuel supply agreement
(FSA) makes it tougher for CIL not to deliver. State government plants had
lower penalties and more concerns over future supply than NTPC power
plants (penalties <90%, while incentives >90%).
Rail infrastructure the main issue going forward… We were expecting
coal production to be the biggest concern, but generators – especially in the
southern region – noted that rail infrastructure is their biggest issue (likely
again due to their high penalty FSAs).
…but we’re still concerned over CIL’s production: Despite a lack of
concern among the central and state generators over CIL’s production, the
negligible increase in production from CIL in FY11E and marginal growth in
FY12E (our estimates) threatens many linkage-based projects (delay, lower
PLF, higher costs).
CIL coal quality falling…slowly: While this was mentioned to us by several
industry contacts in the sector, one generator noted that delivered coal quality
from CIL has reduced by ~20% over the past 20 years despite no change in
the quoted Kcal/kg and no change in plant efficiency.
Outlook
We note these plants were all government-owned operating plants, so many
of their comments related to current capacities rather than growth capacities.
This makes supply concerns even more pronounced. We retain a preference
for those stocks with some competitive advantage over coal supply.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Power - Coal linkages: Beats from the busbar*
Event
Over the past week, we have spoken to managers/operators at 22 central and
state government owned coal-fired power plants to get their view on coal
supply from linkages with Coal India (CIL). Two key takeaways were:
⇒ IPPs with upcoming capacities are at much greater risk of not getting
coal than existing government plants as the former do not have FSAs
with high penalty rates (~90%).
⇒ ~50% of respondents noted that they see supply constraints over the
next two years and 80% of those highlighted that rail infrastructure was
the main issue. This was more pronounced in southern states.
This again highlights the dangers of upcoming IPP projects reliant on coal
linkages. We prefer those stocks with a competitive advantage in fuel
sourcing including Tata Power (TPWR IN, Rs1,233, OP, TP: Rs1553), Adani
Power (ADANI IN, Rs125, OP, TP: Rs146) and Jindal Steel and Power (JSP
IN, Rs648, OP, TP: Rs962).
Impact
Speaking to the operators: We contacted managers/operators responsible
for coal procurement at over 22 central and state government linkage-based,
coal-fired power plants representing 35% of India’s government owned coalfired
plants and over 50% of NTPC’s coal-fired capacity.
IPPs at greater risk: Most of the respondents had no issue with their current
coal supply, highlighting that high penalty rates in their fuel supply agreement
(FSA) makes it tougher for CIL not to deliver. State government plants had
lower penalties and more concerns over future supply than NTPC power
plants (penalties <90%, while incentives >90%).
Rail infrastructure the main issue going forward… We were expecting
coal production to be the biggest concern, but generators – especially in the
southern region – noted that rail infrastructure is their biggest issue (likely
again due to their high penalty FSAs).
…but we’re still concerned over CIL’s production: Despite a lack of
concern among the central and state generators over CIL’s production, the
negligible increase in production from CIL in FY11E and marginal growth in
FY12E (our estimates) threatens many linkage-based projects (delay, lower
PLF, higher costs).
CIL coal quality falling…slowly: While this was mentioned to us by several
industry contacts in the sector, one generator noted that delivered coal quality
from CIL has reduced by ~20% over the past 20 years despite no change in
the quoted Kcal/kg and no change in plant efficiency.
Outlook
We note these plants were all government-owned operating plants, so many
of their comments related to current capacities rather than growth capacities.
This makes supply concerns even more pronounced. We retain a preference
for those stocks with some competitive advantage over coal supply.
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