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S E B r e f o rms a t l a s t , imp l eme n t a t i o n t h e k e y…
The State Power Ministers’ Conference on “Distribution Sector
Reforms” organised in New Delhi on July 14, 2011 has underlined the
need for urgent steps to arrest and reverse the growing losses in power
distribution (which are outlined below). According to the 13
th
Finance
Commission, SEB’s losses are pegged at ~ | 70,000 crore in FY11 (from
| 52,623 crore in FY09). Our take on the proposed reforms is that in the
near term no immediate material impact will be seen on utilities
(although sentimentally positive). In the long term, however, it is the
need of the hour as utilities (NTPC, Lanco Infratech under our coverage
universe) had to be backed by SEBs. If implemented, it could curtail
losses of SEBs, improve their financial situation (to buy power from
IPPs), open up franchise routes to more cities and capex by state SEBs
triggering a possible re-rating of the entire power and power ancillary
space, i.e. IPPs (NTPC, Lanco Infratech), distribution companies (Tata
Power, CESC), T&D equipment (KEC, Kalpataru, Jyoti Structure) and
NBFCs (REC).
The conference agreed upon a set of measures to bring down the
distribution losses. These are as follows:
1. The state governments would ensure that the accounts of the utilities
are audited up to 2009-10 and also ensure that the accounts of a
financial year are audited by September of the next financial year,
henceforth. Computerisation of accounts would be undertaken on
priority, if not done already
2. The states would ensure that the distribution utilities file their annual
tariff revision petition every year, by December–January of the
preceding financial year to the state regulators as stipulated by the
national tariff policy
3. The annual tariff revision petition would be filed before the SERC,
keeping in view the increase of the power purchase cost (which
accounts for nearly 70-80% of the cost of supply) and states will
ensure that the difference between ARR and ACS is not only bridged
but is positive to generate internal surpluses that can be used for
network expansion and maintenance
4. The state governments would ensure automatic pass through in tariff
for any increase in fuel cost by incorporating the same in the
regulations, as provided in Section 62(4) of Electricity Act, 2003.
(State governments can issue directions to SERCs under Section 108
of the Electricity Act, 2003)
Our take: Measures 2, 3 and 4 would clearly pave the way for tariff
hikes bringing down the losses of SEBs. It would also ensure that
increase in fuel cost (by Coal India or imported coal) would not affect
the profitability of IPPs (who would supply to SEBs)
5. The state governments would not only clear all the outstanding
subsidies to the utilities but ensure advance payment of subsidy as
per the Section 65 of the Electricity Act, 2003 in future
6. The eligibility criteria for inclusion of towns with population of 30,000
(10,000 for special category states) under R-APDRP assistance should
be reduced to 15,000 (5,000 for special category states). All district
headquarter towns in special category states should also be covered
under R-APDRP, irrespective of their population
7. The state governments would ensure payment of all outstanding dues
from various departments of state government and institutions to the
distribution utilities or release payments from the state budget directly
8. The state governments would consider converting loans due from the
state governments to distribution utilities as state government equity
will ensure capital infusion and improvement in net worth of utility
9. The state governments would take effective steps to reduce AT&C
losses to less than 15% by administrative measures, curbing pilferage
of electricity and by setting up special police stations and special
courts to deal exclusively with power theft related cases, if not done
already
10. States would immediately initiate steps to appoint distribution
franchises in urban areas through competitive bidding
Our take: Measures 9 and 10 would ensure capex by SEBs
(distribution) - meaning potential orders to companies in T&D space
as well opportunity for companies to enter lucrative distribution
(regulated return of 15.5% + incentives for reducing losses in excess
of target set SERC)
11. States would immediately invite bids for meeting the uncovered
generation capacity gap vis-à-vis the requirement in their states by
the end of the XIIth Plan. The process will be completed by March,
2012
12. States would create a unit in their states for integrated planning of
generation, transmission and distribution to meet the future
requirement of their states
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
S E B r e f o rms a t l a s t , imp l eme n t a t i o n t h e k e y…
The State Power Ministers’ Conference on “Distribution Sector
Reforms” organised in New Delhi on July 14, 2011 has underlined the
need for urgent steps to arrest and reverse the growing losses in power
distribution (which are outlined below). According to the 13
th
Finance
Commission, SEB’s losses are pegged at ~ | 70,000 crore in FY11 (from
| 52,623 crore in FY09). Our take on the proposed reforms is that in the
near term no immediate material impact will be seen on utilities
(although sentimentally positive). In the long term, however, it is the
need of the hour as utilities (NTPC, Lanco Infratech under our coverage
universe) had to be backed by SEBs. If implemented, it could curtail
losses of SEBs, improve their financial situation (to buy power from
IPPs), open up franchise routes to more cities and capex by state SEBs
triggering a possible re-rating of the entire power and power ancillary
space, i.e. IPPs (NTPC, Lanco Infratech), distribution companies (Tata
Power, CESC), T&D equipment (KEC, Kalpataru, Jyoti Structure) and
NBFCs (REC).
The conference agreed upon a set of measures to bring down the
distribution losses. These are as follows:
1. The state governments would ensure that the accounts of the utilities
are audited up to 2009-10 and also ensure that the accounts of a
financial year are audited by September of the next financial year,
henceforth. Computerisation of accounts would be undertaken on
priority, if not done already
2. The states would ensure that the distribution utilities file their annual
tariff revision petition every year, by December–January of the
preceding financial year to the state regulators as stipulated by the
national tariff policy
3. The annual tariff revision petition would be filed before the SERC,
keeping in view the increase of the power purchase cost (which
accounts for nearly 70-80% of the cost of supply) and states will
ensure that the difference between ARR and ACS is not only bridged
but is positive to generate internal surpluses that can be used for
network expansion and maintenance
4. The state governments would ensure automatic pass through in tariff
for any increase in fuel cost by incorporating the same in the
regulations, as provided in Section 62(4) of Electricity Act, 2003.
(State governments can issue directions to SERCs under Section 108
of the Electricity Act, 2003)
Our take: Measures 2, 3 and 4 would clearly pave the way for tariff
hikes bringing down the losses of SEBs. It would also ensure that
increase in fuel cost (by Coal India or imported coal) would not affect
the profitability of IPPs (who would supply to SEBs)
5. The state governments would not only clear all the outstanding
subsidies to the utilities but ensure advance payment of subsidy as
per the Section 65 of the Electricity Act, 2003 in future
6. The eligibility criteria for inclusion of towns with population of 30,000
(10,000 for special category states) under R-APDRP assistance should
be reduced to 15,000 (5,000 for special category states). All district
headquarter towns in special category states should also be covered
under R-APDRP, irrespective of their population
7. The state governments would ensure payment of all outstanding dues
from various departments of state government and institutions to the
distribution utilities or release payments from the state budget directly
8. The state governments would consider converting loans due from the
state governments to distribution utilities as state government equity
will ensure capital infusion and improvement in net worth of utility
9. The state governments would take effective steps to reduce AT&C
losses to less than 15% by administrative measures, curbing pilferage
of electricity and by setting up special police stations and special
courts to deal exclusively with power theft related cases, if not done
already
10. States would immediately initiate steps to appoint distribution
franchises in urban areas through competitive bidding
Our take: Measures 9 and 10 would ensure capex by SEBs
(distribution) - meaning potential orders to companies in T&D space
as well opportunity for companies to enter lucrative distribution
(regulated return of 15.5% + incentives for reducing losses in excess
of target set SERC)
11. States would immediately invite bids for meeting the uncovered
generation capacity gap vis-à-vis the requirement in their states by
the end of the XIIth Plan. The process will be completed by March,
2012
12. States would create a unit in their states for integrated planning of
generation, transmission and distribution to meet the future
requirement of their states
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