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POWER
Current view
q Installed capacity addition during first two years of XIth plan was 19582 MW
which was almost equivalent to the entire capacity addition during the Xth plan
highlighting acceleration in generation in capacity. For the XIth plan, 78000
MW of capacity addition was targeted. As against this, as per CEA, a capacity of
62374 MW is expected to be commissioned. A notable feature of the XIth plan
has been the lead taken by the private sector in capacity building.
q The annual power shortage at base load and peak load stands at 9.9% and
12.6% for FY10, underscoring the fact that the India continues to face power
crunch.
q With significant capacity addition under construction phase, we expect the supply
crunch in power sector to narrow considerably in the next 3-4 years
timeframe.
q However, while capacity is being added, the financial health of SEBs has been
deteriorating at a rapid pace due to their inability to completely pass the cost increase
in power to its consumers. Increase in cost of power is the prime factor
that has driven losses in SEBs.
q As a result, we have seen in recent times that SEBs have resisted buying power
even from long-term contracts. This is resulting in downward pressure on merchant
power rates. Weighted average power tariff on short-term bilateral trades
(account for significant share of short-term power sale) was in the range of Rs
4.0-4.25 per unit.
q In our view, deteriorating financial health of SEBs and falling merchant prices
are matters of grave concern since several existing and upcoming private sector
capacities have sizeable share of power that has not been contracted through
the long-term power sale agreement.
q Another issue is of fuel security as Coal India Ltd may struggle to meet the demand
from upcoming power capacity.
q In this situation, we prefer utilities that have optimum mix between merchant
power and long-term power, long-term fuel security and near-term project
completion visibility.
q Withholding tax is charged on the repatriation of income from equity or debt.
The ability of domestic financial system to fund long-gestation power projects is
limited by sectoral caps set by the central bank. In this regard, the power sector
may get a boost if withholding tax on overseas investment in the sector is removed.
q In view of the imposition of MAT, the industry expects the FM to do away with
surcharge on tax of 7.5%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
POWER
Current view
q Installed capacity addition during first two years of XIth plan was 19582 MW
which was almost equivalent to the entire capacity addition during the Xth plan
highlighting acceleration in generation in capacity. For the XIth plan, 78000
MW of capacity addition was targeted. As against this, as per CEA, a capacity of
62374 MW is expected to be commissioned. A notable feature of the XIth plan
has been the lead taken by the private sector in capacity building.
q The annual power shortage at base load and peak load stands at 9.9% and
12.6% for FY10, underscoring the fact that the India continues to face power
crunch.
q With significant capacity addition under construction phase, we expect the supply
crunch in power sector to narrow considerably in the next 3-4 years
timeframe.
q However, while capacity is being added, the financial health of SEBs has been
deteriorating at a rapid pace due to their inability to completely pass the cost increase
in power to its consumers. Increase in cost of power is the prime factor
that has driven losses in SEBs.
q As a result, we have seen in recent times that SEBs have resisted buying power
even from long-term contracts. This is resulting in downward pressure on merchant
power rates. Weighted average power tariff on short-term bilateral trades
(account for significant share of short-term power sale) was in the range of Rs
4.0-4.25 per unit.
q In our view, deteriorating financial health of SEBs and falling merchant prices
are matters of grave concern since several existing and upcoming private sector
capacities have sizeable share of power that has not been contracted through
the long-term power sale agreement.
q Another issue is of fuel security as Coal India Ltd may struggle to meet the demand
from upcoming power capacity.
q In this situation, we prefer utilities that have optimum mix between merchant
power and long-term power, long-term fuel security and near-term project
completion visibility.
q Withholding tax is charged on the repatriation of income from equity or debt.
The ability of domestic financial system to fund long-gestation power projects is
limited by sectoral caps set by the central bank. In this regard, the power sector
may get a boost if withholding tax on overseas investment in the sector is removed.
q In view of the imposition of MAT, the industry expects the FM to do away with
surcharge on tax of 7.5%.
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