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http://www.icicidirect.com/mailimages/ICICIdirect_Power_SectorUpdate_February2012.pdf
PMO d i r e c t i v e o n F S A , a t wh a t c o s t ? ? ?
The Prime Minister’s Office (PMO) has directed Coal India to sign fuel
supply agreements (FSA) with power plants commissioned till
December 2011 by March 2012. In the event of supplies dropping below
80% of the contracted value for these FSAs, Coal India will have to pay
a penalty but will be incentivised to provide 90%. For power plants,,
which are expected to be operational before March 31, 2015 and have
long term PPAs, Coal India will sign FSAs for 20 years. The directive also
states that in case of a shortfall (which we believe there will be), Coal
India would arrange for supply of coal through imports or through
arrangement with state/central PSUs that have been allotted coal
blocks.
Our view is that while this directive is a step in the right direction
(previous measure like Shunglu committee reports were also in the
right direction), the question boils down to implementation. We believe
there are a few questions, which power producers are grappling with:
1) Where is incremental coal going to come from?
2) At what price?
3) Will companies with coal blocks ramp up coal production to
augment supplies? At what price should they sell coal?
4) Does infrastructure in India, support coal movement from coal
mines to power stations or from ports to hinterland?
We spoke to the managements of some of the companies (Reliance
Power, JPVL) to get their perspective regarding the above issues.
Following are the key takeaways
1) The entire exercise of making Coal India sign an FSA was to make the
monopolistic producer Coal India more responsible
2) As regards augmenting supplies for near term to power producers i)
Coal India can divert e-auction coal to power producers ii) There are
some thermal plants, which are inefficient in nature as regards coal
consumed per unit of power produced. So, rationalise supplies to
them and divert coal to newly commissioned projects iii) Import coal
– As a big buyer like Coal India will be attract discount to market price
3) Over the long term, projects (coal mines) stuck up in environmental
clearances or go no go area have to get go ahead in order to improve
long term coal supply within the country
4) The view on price was it would be blended price – which shall be a
complete pass through to SEBs (power price will go up as a result of
“this “ cost push but tariff hikes by states would ensure no back
downs)
5) There is a possibility that private companies who have got captive
mines (operational) will be allowed to ramp up production and sell it
to nearby projects
6) Regarding transport of imported coal, companies do agree that there
are infrastructure bottlenecks for inland transportation. However, in
the interim, there can coal be swapping agreements wherein plants
near coastal areas (who have got linkage coal from Coal India) can
use imported coal and inland projects use Coal India’s coal
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.icicidirect.com/mailimages/ICICIdirect_Power_SectorUpdate_February2012.pdf
PMO d i r e c t i v e o n F S A , a t wh a t c o s t ? ? ?
The Prime Minister’s Office (PMO) has directed Coal India to sign fuel
supply agreements (FSA) with power plants commissioned till
December 2011 by March 2012. In the event of supplies dropping below
80% of the contracted value for these FSAs, Coal India will have to pay
a penalty but will be incentivised to provide 90%. For power plants,,
which are expected to be operational before March 31, 2015 and have
long term PPAs, Coal India will sign FSAs for 20 years. The directive also
states that in case of a shortfall (which we believe there will be), Coal
India would arrange for supply of coal through imports or through
arrangement with state/central PSUs that have been allotted coal
blocks.
Our view is that while this directive is a step in the right direction
(previous measure like Shunglu committee reports were also in the
right direction), the question boils down to implementation. We believe
there are a few questions, which power producers are grappling with:
1) Where is incremental coal going to come from?
2) At what price?
3) Will companies with coal blocks ramp up coal production to
augment supplies? At what price should they sell coal?
4) Does infrastructure in India, support coal movement from coal
mines to power stations or from ports to hinterland?
We spoke to the managements of some of the companies (Reliance
Power, JPVL) to get their perspective regarding the above issues.
Following are the key takeaways
1) The entire exercise of making Coal India sign an FSA was to make the
monopolistic producer Coal India more responsible
2) As regards augmenting supplies for near term to power producers i)
Coal India can divert e-auction coal to power producers ii) There are
some thermal plants, which are inefficient in nature as regards coal
consumed per unit of power produced. So, rationalise supplies to
them and divert coal to newly commissioned projects iii) Import coal
– As a big buyer like Coal India will be attract discount to market price
3) Over the long term, projects (coal mines) stuck up in environmental
clearances or go no go area have to get go ahead in order to improve
long term coal supply within the country
4) The view on price was it would be blended price – which shall be a
complete pass through to SEBs (power price will go up as a result of
“this “ cost push but tariff hikes by states would ensure no back
downs)
5) There is a possibility that private companies who have got captive
mines (operational) will be allowed to ramp up production and sell it
to nearby projects
6) Regarding transport of imported coal, companies do agree that there
are infrastructure bottlenecks for inland transportation. However, in
the interim, there can coal be swapping agreements wherein plants
near coastal areas (who have got linkage coal from Coal India) can
use imported coal and inland projects use Coal India’s coal
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