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D i s t r i b u t i o n r e f o rms a r e k e y…
We met with I.C.P. Keshari, Joint Secretary, Ministry of Power, to get a
sense on where the sector is positioned over the next couple of years. In
a nutshell, recent tariff hikes by SEBs can sustain them in the shortterm. However, the real issue is distribution (AT&C losses – 25%+ at all
India level). Unless distribution reforms happen (at the state level) in
terms of T&D capex/distribution on PPP model, no real sustainable
improvement of SEB finances can happen in the long run.
Key takeaways from the meeting
1. According to the ministry, ~ 8000 MW based on imported coal is
stranded (increase in coal price due to importing countries regulation
– making the projects unviable in the short-term)
2. There is calculation lag (in terms of coal price escalation) between
actual prices and those mentioned in CERC. Imported coal price has
risen by ~40% per annum (since 2007) against CERC allowed
escalation of 3%
3. Lenders have tightened lending norms to SEBs for short-term loans;
compelling them to hike tariffs in the near term
4. No bailouts of SEBs this time (unlike 2003) by the Central
government. Case in point: Not a single paisa was released when
Tamil Nadu Electricity Board wanted a bailout from the Central
government for ~| 40000 crore losses
5. Till date in FY12, nine SEBs have hiked tariffs between 1% and 30%.
More hikes can came (next hike anticipate from Tamil Nadu SEB)
6. Tariff hike’s can sustain SEB’s finances in the short-term (we view
FY12 as peaking of SEBs losses; provided tariff hikes happen in
subsequent years)
7. Tariff hike’s can sustain SEB’s finances in the short-term (we view
FY12 as peaking of SEBs losses; provided tariff hikes happen in
subsequent years)
8. However, in the long run, according to the ministry, along with tariff
hikes, distribution reforms (in terms of transmission and distribution
capex and franchising) is the panacea for improving the financial
health of SEBs. Some SEBs have started it: Tamil Nadu plans to
invest | 14000 crore on T&D infrastructure over the next four years,
split | 6000 crore in transmission and | 8000 crore in distribution.
Many more will “have“ to follow, in our view. Past experiences in the
distribution sector have worked. Case in point: Torrent Power
Bhiwandi franchise: AT&C losses have come down from 48%+ to
17.95% (FY11).
9. Ministry expects 50,000 MW of capacity addition in the 11th Five Year
Plan vs. the revised target of 62,000 MW.
10. Shunglu committee report on SEBs (to come in the last week of
September/ early October) is expected to provide a clearer picture of
SEB finances (for further policy direction)
11. The next set of reforms from the ministry would be Standard Bidding
Document (SBD) for Case 1 and Case 2 bids
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
D i s t r i b u t i o n r e f o rms a r e k e y…
We met with I.C.P. Keshari, Joint Secretary, Ministry of Power, to get a
sense on where the sector is positioned over the next couple of years. In
a nutshell, recent tariff hikes by SEBs can sustain them in the shortterm. However, the real issue is distribution (AT&C losses – 25%+ at all
India level). Unless distribution reforms happen (at the state level) in
terms of T&D capex/distribution on PPP model, no real sustainable
improvement of SEB finances can happen in the long run.
Key takeaways from the meeting
1. According to the ministry, ~ 8000 MW based on imported coal is
stranded (increase in coal price due to importing countries regulation
– making the projects unviable in the short-term)
2. There is calculation lag (in terms of coal price escalation) between
actual prices and those mentioned in CERC. Imported coal price has
risen by ~40% per annum (since 2007) against CERC allowed
escalation of 3%
3. Lenders have tightened lending norms to SEBs for short-term loans;
compelling them to hike tariffs in the near term
4. No bailouts of SEBs this time (unlike 2003) by the Central
government. Case in point: Not a single paisa was released when
Tamil Nadu Electricity Board wanted a bailout from the Central
government for ~| 40000 crore losses
5. Till date in FY12, nine SEBs have hiked tariffs between 1% and 30%.
More hikes can came (next hike anticipate from Tamil Nadu SEB)
6. Tariff hike’s can sustain SEB’s finances in the short-term (we view
FY12 as peaking of SEBs losses; provided tariff hikes happen in
subsequent years)
7. Tariff hike’s can sustain SEB’s finances in the short-term (we view
FY12 as peaking of SEBs losses; provided tariff hikes happen in
subsequent years)
8. However, in the long run, according to the ministry, along with tariff
hikes, distribution reforms (in terms of transmission and distribution
capex and franchising) is the panacea for improving the financial
health of SEBs. Some SEBs have started it: Tamil Nadu plans to
invest | 14000 crore on T&D infrastructure over the next four years,
split | 6000 crore in transmission and | 8000 crore in distribution.
Many more will “have“ to follow, in our view. Past experiences in the
distribution sector have worked. Case in point: Torrent Power
Bhiwandi franchise: AT&C losses have come down from 48%+ to
17.95% (FY11).
9. Ministry expects 50,000 MW of capacity addition in the 11th Five Year
Plan vs. the revised target of 62,000 MW.
10. Shunglu committee report on SEBs (to come in the last week of
September/ early October) is expected to provide a clearer picture of
SEB finances (for further policy direction)
11. The next set of reforms from the ministry would be Standard Bidding
Document (SBD) for Case 1 and Case 2 bids
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