Power -Round 1– Over aggression may spoil play… ::ICICI Securities, report link

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 Round 1– Over aggression may spoil play… The ongoing coal auction witnessed stiff competition among power bidders, which crossed all limits to win the available coal blocks. Round 1, which saw the auction of 18 coal blocks, fetched the exchequer a total sum of ~ | 1.08 lakh crore. Of this, seven blocks were reserved for the power sector while others were for unregulated one. Although CESC and Jaiprakash Power (JPVL) retained their existing coal blocks, the companies had to pay a heavy price for the same (non-recoverable) because of intense competition. We believe such an aggressive bidding will lead to under recovery of fuel cost to the tune of 9 - 10 paise/unit, which amounts to an annual loss of ~| 45 crore for CESC while for JPVL the loss can be offset by quoting higher fixed cost for its Nigrie plant, which is yet to enter into PPA for 50% of its capacity. Factoring in the same, while we maintain our target price for JPVL, we downgrade the same for CESC from | 855 to | 672 to factor in its fuel cost under recovery. The first round of e-auction for the coal block, which began on February 14, 2015 and ended on February 22, 2015, witnessed robust interest among qualified bidders. The need to ensure fuel security resulted in intense competition among the power and non-power players. Overall, 19 coal blocks were auctioned (power – seven and unregulated – 12), which fetched the exchequer close to ~| 1.21 lakh crore including royalty income of | 12,801 crore. Accordingly, the respective states, where the coal blocks are located, will benefit from the proceeds of the auction of these blocks. While Madhya Pradesh (MP) tops the list of states in terms of auction proceeds (| 39,900 crore) it is followed by Chhattisgarh (| 26,425 crore), Jharkhand, West Bengal, Maharashtra and Odisha. Exhibit 1: State wise auction proceed States Auction proceeds (| crore) MP 39900 Chattisgarh 26425 Jharkhand 14498 West Bengal 13210 Maharashtra 1819 Odisha 607 Source: Ministry of Coal, ICICIdirect.com Research Of the total 19 blocks, seven were reserved for the power sector, which saw intense competition among qualified bidders. Unlike the coal auction for non regulated players where forward bidding process was followed, coal auction for the power segment witnessed reverse bidding process where the upper price was fixed at ~| 1,200/tonne based on Coal India’s (CIL) notified rate while the base rate was fixed at | 100/tonne. A company quoting the lowest bid was entitled to receive the available block. Consequently, power companies crossed all limits to win the available coal blocks to ensure fuel security for the targeted power plants. Overall, six power companies viz. CESC, GMR Energy, Durgapur Projects, Essar Energy, JPVL and Jindal Steel & Power (Jindal Power) have won the coal blocks by making negative bids i.e. the companies have quoted negative fuel cost (non recoverable in the tariff) to secure fuel supply. While CESC has quoted negative fuel cost of | 470/tonne to retain its Sarisatolli block, GMR and Durgapur have quoted - |478/tone

LINK
http://content.icicidirect.com/mailimages/IDirect_Power_SectorUpdate_Feb15.pdf