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Indian Power & Coal
HSBC London India Inaugural Infrastructure conference
attended by top policy makers and PSUs – take aways
Coal supply resolution top of agenda for the 12th FYP as longterm
dependence of imported coal is perceived to be risky
Future lending to SEBs to be contingent upon states following
guidelines agreed by state power ministers
Short-term solution on fuel issues being explored but 12-18
months of pain is almost certain
Coal supply issue is being monitored at the highest level: Government representatives were
concerned about shortages in domestic coal supply as restrictions could potentially be imposed
by suppliers such as Indonesia and South Africa. They believed numerous measures being
undertaken, including monitoring by the Prime Minister’s Office, will help raise domestic
supply in the next two years as well as ensuring better distribution of coal. Measures under
consideration include faster environmental clearance, expediting land acquisition, private
participation in coal transportation, and higher mechanisation of coal mining activity.
Cross holding by public enterprises (PSU) on the table, but unlikely: The
Disinvestment Ministry white paper has various recommendations for government to meet
the current year’s disinvestment target. Cross holding by PSUs is one of the options
suggested, but a final decision on use of this option will be taken after further deliberation
among various other ministries. The officials are aware of the pit falls of such a decision
and hence we believe this is unlikely.
Many short-term steps on the table to resolve fuel and State Electricity Board (SEB)
financial issues: Measures to ramp up production include canalized import by
government and blended pricing. Further government is also considering increasing the
sale of coal via e-auctions and concessions in tariffs for those being forced to import coal.
SEB financial issues to be addressed though implementation of the Shunglu committee
and Forum of Regulators recommendations include: a) automatic tariff revisions by the
regulator on a suo-motto basis and b) following key guidelines of state power minister’s
resolution. Bank lending will be contingent upon states undertaking the reforms.
12th plan set to create a fund to support distribution reform with availability limited
to states undertaking reforms: The 12th plan is creating an incentive mechanism for
states for regular tariff revision and loss reduction and possibly private sector participation
in urban power distribution. However, we expect 12-18 months of pain in the sector
mainly due to fuel supply constraints although SEB financial health adds to the problem.
Our preference for transmission: Given the fuel pressure (read coal); we recommend
exposure to transmission rather than generation companies. Our preferred play is Power Grid
(PWGR IN, INR95.20, target INR130, Overweight) with relatively better earnings clarity and
limited operational risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Power & Coal
HSBC London India Inaugural Infrastructure conference
attended by top policy makers and PSUs – take aways
Coal supply resolution top of agenda for the 12th FYP as longterm
dependence of imported coal is perceived to be risky
Future lending to SEBs to be contingent upon states following
guidelines agreed by state power ministers
Short-term solution on fuel issues being explored but 12-18
months of pain is almost certain
Coal supply issue is being monitored at the highest level: Government representatives were
concerned about shortages in domestic coal supply as restrictions could potentially be imposed
by suppliers such as Indonesia and South Africa. They believed numerous measures being
undertaken, including monitoring by the Prime Minister’s Office, will help raise domestic
supply in the next two years as well as ensuring better distribution of coal. Measures under
consideration include faster environmental clearance, expediting land acquisition, private
participation in coal transportation, and higher mechanisation of coal mining activity.
Cross holding by public enterprises (PSU) on the table, but unlikely: The
Disinvestment Ministry white paper has various recommendations for government to meet
the current year’s disinvestment target. Cross holding by PSUs is one of the options
suggested, but a final decision on use of this option will be taken after further deliberation
among various other ministries. The officials are aware of the pit falls of such a decision
and hence we believe this is unlikely.
Many short-term steps on the table to resolve fuel and State Electricity Board (SEB)
financial issues: Measures to ramp up production include canalized import by
government and blended pricing. Further government is also considering increasing the
sale of coal via e-auctions and concessions in tariffs for those being forced to import coal.
SEB financial issues to be addressed though implementation of the Shunglu committee
and Forum of Regulators recommendations include: a) automatic tariff revisions by the
regulator on a suo-motto basis and b) following key guidelines of state power minister’s
resolution. Bank lending will be contingent upon states undertaking the reforms.
12th plan set to create a fund to support distribution reform with availability limited
to states undertaking reforms: The 12th plan is creating an incentive mechanism for
states for regular tariff revision and loss reduction and possibly private sector participation
in urban power distribution. However, we expect 12-18 months of pain in the sector
mainly due to fuel supply constraints although SEB financial health adds to the problem.
Our preference for transmission: Given the fuel pressure (read coal); we recommend
exposure to transmission rather than generation companies. Our preferred play is Power Grid
(PWGR IN, INR95.20, target INR130, Overweight) with relatively better earnings clarity and
limited operational risks.
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