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India: Utilities: Power - Generation
Equity Research
Visibility now on coal supplies but at what price?
Coal India to meet at least 80% of the requirement
The Prime Minister approved the proposal requiring Coal India (CIL) to sign
Fuel Supply Agreements (FSAs) with power plants that 1) are commissioned
on or before March 2015; and 2) enter into long-term PPAs. The FSAs
mandate supplying at least 80% of the full quantity of coal for a period of 20
years. CIL (Neutral) will be subject to penalties if supplies fall short of 80%. In
case of any shortfall in fulfilling its commitment under the FSAs from its own
production, CIL will arrange to supply coal through imports or
arrangements with state/central PSUs that have been allotted coal blocks.
More visibility on coal supply, but pricing is key; NT issues to persist
While we believe this news flow is positive for the power sector as it ensures
higher visibility of coal supplies, clarity is yet to emerge on how CIL will meet
this target. It appears that CIL will have to import coal, and Clause 9 of the
model FSA allows CIL to pass through the cost of imported coal to power
companies. In this scenario, we think private IPPs will still see cost pressures,
particularly for plants with no fuel pass-through clauses built into their PPAs.
57 GW will be eligible to receive coal from CIL; sufficient to meet
50%-55% of requirements from its own production
Our bottom-up supply analysis suggests that 57 GW of capacity (from April
2009 to March 2015) are based on CIL coal and are in long-term PPAs. Based
on our calculations, we believe incremental supplies of CIL’s own coal will be
sufficient to meet 50%-55% of the total requirement for FY12E-FY15E
(calculated at 80% PLF), with the remainder to be met by imported coal. In the
event the 12GW (based on CIL coal but not in a PPA) of capacity becomes tied
under a long-term PPA, then CIL’s own supplies would meet just 45% of total
requirements by FY15E.
Positive for Lanco Infratech and Adani Power
We believe private IPPs will benefit if CIL meets its 80% commitment
through: 1) an improvement in production/dispatch growth vs. historical
growth rates; 2) the procurement of coal supplies from blocks owned by
central and state PSUs; 3) delays in state and central sector projects; and/or
4) the formulation of a mechanism that could reduce the delivered cost of
imported coal. Our scenario analysis suggests that Lanco Infratech
(Neutral) and Adani Power (Neutral) will benefit if CIL meets at-least 70% of
their requirements (at current prices).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Utilities: Power - Generation
Equity Research
Visibility now on coal supplies but at what price?
Coal India to meet at least 80% of the requirement
The Prime Minister approved the proposal requiring Coal India (CIL) to sign
Fuel Supply Agreements (FSAs) with power plants that 1) are commissioned
on or before March 2015; and 2) enter into long-term PPAs. The FSAs
mandate supplying at least 80% of the full quantity of coal for a period of 20
years. CIL (Neutral) will be subject to penalties if supplies fall short of 80%. In
case of any shortfall in fulfilling its commitment under the FSAs from its own
production, CIL will arrange to supply coal through imports or
arrangements with state/central PSUs that have been allotted coal blocks.
More visibility on coal supply, but pricing is key; NT issues to persist
While we believe this news flow is positive for the power sector as it ensures
higher visibility of coal supplies, clarity is yet to emerge on how CIL will meet
this target. It appears that CIL will have to import coal, and Clause 9 of the
model FSA allows CIL to pass through the cost of imported coal to power
companies. In this scenario, we think private IPPs will still see cost pressures,
particularly for plants with no fuel pass-through clauses built into their PPAs.
57 GW will be eligible to receive coal from CIL; sufficient to meet
50%-55% of requirements from its own production
Our bottom-up supply analysis suggests that 57 GW of capacity (from April
2009 to March 2015) are based on CIL coal and are in long-term PPAs. Based
on our calculations, we believe incremental supplies of CIL’s own coal will be
sufficient to meet 50%-55% of the total requirement for FY12E-FY15E
(calculated at 80% PLF), with the remainder to be met by imported coal. In the
event the 12GW (based on CIL coal but not in a PPA) of capacity becomes tied
under a long-term PPA, then CIL’s own supplies would meet just 45% of total
requirements by FY15E.
Positive for Lanco Infratech and Adani Power
We believe private IPPs will benefit if CIL meets its 80% commitment
through: 1) an improvement in production/dispatch growth vs. historical
growth rates; 2) the procurement of coal supplies from blocks owned by
central and state PSUs; 3) delays in state and central sector projects; and/or
4) the formulation of a mechanism that could reduce the delivered cost of
imported coal. Our scenario analysis suggests that Lanco Infratech
(Neutral) and Adani Power (Neutral) will benefit if CIL meets at-least 70% of
their requirements (at current prices).
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