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The Power panel discussion was moderated by Mr. A. Balasubramaniam,
CEO and CIO of Birla Asset Management Pvt Ltd. The panel comprised of
Mr. Ajoy Mehta (MD - Maharashtra State Electricity Distribution Company
Ltd), Mr. DS Ahluwalia (GM, Rural Electrification Corporation), Mr.
Vijayanarasimha (MD - Mangalore Electricity Supply Company), Mr. S C
Srivastava (Joint Chief - Generation, CERC), Mr. Rakesh Kumar (Executive
Vice President - Business Development, PTC) and Mr. Shrikant Kulkarni
(Head of Strategy, Reliance Power).
Overall, the view was that the power sector currently faces two key issues
- fuel availability and SEB health (cash losses of Rs1000bn per year).
However, the solutions suggested are not short term and require huge
political will.
Mr. Ajoy Mehta was our guest speaker and spoke on MSEDCL's key reforms/
initiatives and open-access challenges. key highlights:
n In the guest speaker session, Mr. Mehta highlighted MSEDCL's key reforms/initiatives.
One of the key initiatives has been feeder separation for Agri and other loads, where
agriculture gets supply during off peak hours. This has led to better demand side
management (4,593MW of load management achieved). Partly contributed by feeder
separation, Maharashtra is as good as load shedding free from Jan'2011.
n Driven by feeder separation and proper feeder wise energy accounting systems at
zone, circle and division level, the T&D losses have reduced significantly and are
currently meeting MERC target of 17.3%.
n Maharashtra is aggressively looking at distribution franchisee model, with it adopting
the same for Bhiwandi (Torrent Power), Nagpur (Spanco) and Aurangabad (GTL) circle.
Further, about 5 circles are under process. Bhiwandi franchisee was the first distribution
franchisee in the country and has set an excellent example.
n Mr. Mehta highlighted challenges/issues in open access for MSEDCL. The major
issues are cross subsidy surcharge and standby charges along with the technical
issue of difficulty in discontinuing power supply from the grid.
n In FY10, cross subsidy of MSEDCL stood at around Rs46bn, which is subsidizing
mainly agriculture and small residential consumers.
n Even though MSEDCL is in much better shape compared to most of the other discoms,
the issues of under-recoveries in distribution, open access operationalization remains
as electricity is also a social obligation, in which case, the cross subsidies are difficult
to phase out. However, T&D remains the area for future growth and offers huge
opportunities for financial investors as well as corporate players.
We have summed up the views of panelists below:
n Mr. Ahluwalia presented his views on SEB health, escrow accounts and power
financing. He believes that SEB health is a concern but it has been there for long and
is not new. Inspite of their bad financial health, SEBs have been paying on time and
have not defaulted till date. Even in case of Tamil Nadu, REC received a payment due
just three days back and is assured by TNEB of payments in future. On escrow accounts,
he believes that in a situation of cash losses for SEBs, escrow accounts might
practically be ineffective instruments of credit guarantee.
n Mr. S C Srivastava presented his views on open access, ROE of different segments
and next focus area for CERC. He indicated that the ROE of hydro plants is not
proportionate to risks (longer gestation period) and therefore, CERC is thinking on
the lines of some mid-term changes in regulations. However, he also specified that
there is nothing concrete as of now. On open access, he felt that though there are
issues (cross subsidy, stand by charges etc), the discoms need to promote
competition and therefore, should work towards that. The next focus area for CERC is
renewable energy in which, CERC has already introduced quite a few regulations in
the recent past (REC, Tariff regulations etc). Most of the states have announced
mandatory renewable purchase obligations (RPO). Though CERC does not have
any direct say on state power distribution, the CERC chairman being chairperson of
forum of regulators, has an indirect role to play.
n Mr. Vijayanarasimha presented his view on current losses, regulatory cap of Rs4/
unit by KERC, reasons for lower T&D losses in his circle and scope for distribution
franchisee. He feels that the reason for the current health of SEBs is mainly due to the
power purchase cost, which accounts for almost 70-80% of the total cost. He indicated
that the regulatory cap of Rs4/unit does not act as a restriction. He feels that currently
MESCOM requires short term power only in the months of February, March and at
max, April. With a little bit of demand management, there might not be any requirement
of short term power, going forward. Most of the SEBs nowadays prefer buying short
term power on exchanges for few days rather than locking themselves for few months.
Apart from the loss reduction measures taken, one of the reasons for low T&D losses
in his circle (about 11%), is the consumer profile MESCOM has (almost no theft). On
the scope for distribution franchisee in the country, he feels that there are not many
circles (with high T&D losses and decent industrial consumer base - like Bhiwandi)
which will generate interest from private players.
n Mr. Rakesh Kumar presented his views on the current and future power prices and
power prices in different countries. He indicated that merchant power prices should
stabilize at Rs4/unit and should not go below this level. According to him, the cost of
power supply was Rs4/unit in FY05 and is Rs4.5/unit currently; therefore, it is not the
reason for increase in SEB losses and the reason lies somewhere else. Though he
feels that power prices in India (especially to industrial and commercial consumers)
is currently on the higher side, considering the cost of supply is increasing, tariffs are
likely to remain high.
n Mr. Shrikant Kulkarni presented his views on key issues like fuel availability and
blending possibilities in the event of shortages of domestic coal. He believes that fuel
availability definitely remains a huge risk for power developers and captive fuel should
be the strategy. Considering that Reliance Power has been blending imported coal in
its Rosa plant, he feels that about 30% blending (CEA also thinking on same lines) is
possible in a domestic coal based plant, keeping in mind technical and logistics
issues. He feels that for blending, not only imported coal but also washery rejects are
a possibility (already blending at Rosa).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Power panel discussion was moderated by Mr. A. Balasubramaniam,
CEO and CIO of Birla Asset Management Pvt Ltd. The panel comprised of
Mr. Ajoy Mehta (MD - Maharashtra State Electricity Distribution Company
Ltd), Mr. DS Ahluwalia (GM, Rural Electrification Corporation), Mr.
Vijayanarasimha (MD - Mangalore Electricity Supply Company), Mr. S C
Srivastava (Joint Chief - Generation, CERC), Mr. Rakesh Kumar (Executive
Vice President - Business Development, PTC) and Mr. Shrikant Kulkarni
(Head of Strategy, Reliance Power).
Overall, the view was that the power sector currently faces two key issues
- fuel availability and SEB health (cash losses of Rs1000bn per year).
However, the solutions suggested are not short term and require huge
political will.
Mr. Ajoy Mehta was our guest speaker and spoke on MSEDCL's key reforms/
initiatives and open-access challenges. key highlights:
n In the guest speaker session, Mr. Mehta highlighted MSEDCL's key reforms/initiatives.
One of the key initiatives has been feeder separation for Agri and other loads, where
agriculture gets supply during off peak hours. This has led to better demand side
management (4,593MW of load management achieved). Partly contributed by feeder
separation, Maharashtra is as good as load shedding free from Jan'2011.
n Driven by feeder separation and proper feeder wise energy accounting systems at
zone, circle and division level, the T&D losses have reduced significantly and are
currently meeting MERC target of 17.3%.
n Maharashtra is aggressively looking at distribution franchisee model, with it adopting
the same for Bhiwandi (Torrent Power), Nagpur (Spanco) and Aurangabad (GTL) circle.
Further, about 5 circles are under process. Bhiwandi franchisee was the first distribution
franchisee in the country and has set an excellent example.
n Mr. Mehta highlighted challenges/issues in open access for MSEDCL. The major
issues are cross subsidy surcharge and standby charges along with the technical
issue of difficulty in discontinuing power supply from the grid.
n In FY10, cross subsidy of MSEDCL stood at around Rs46bn, which is subsidizing
mainly agriculture and small residential consumers.
n Even though MSEDCL is in much better shape compared to most of the other discoms,
the issues of under-recoveries in distribution, open access operationalization remains
as electricity is also a social obligation, in which case, the cross subsidies are difficult
to phase out. However, T&D remains the area for future growth and offers huge
opportunities for financial investors as well as corporate players.
We have summed up the views of panelists below:
n Mr. Ahluwalia presented his views on SEB health, escrow accounts and power
financing. He believes that SEB health is a concern but it has been there for long and
is not new. Inspite of their bad financial health, SEBs have been paying on time and
have not defaulted till date. Even in case of Tamil Nadu, REC received a payment due
just three days back and is assured by TNEB of payments in future. On escrow accounts,
he believes that in a situation of cash losses for SEBs, escrow accounts might
practically be ineffective instruments of credit guarantee.
n Mr. S C Srivastava presented his views on open access, ROE of different segments
and next focus area for CERC. He indicated that the ROE of hydro plants is not
proportionate to risks (longer gestation period) and therefore, CERC is thinking on
the lines of some mid-term changes in regulations. However, he also specified that
there is nothing concrete as of now. On open access, he felt that though there are
issues (cross subsidy, stand by charges etc), the discoms need to promote
competition and therefore, should work towards that. The next focus area for CERC is
renewable energy in which, CERC has already introduced quite a few regulations in
the recent past (REC, Tariff regulations etc). Most of the states have announced
mandatory renewable purchase obligations (RPO). Though CERC does not have
any direct say on state power distribution, the CERC chairman being chairperson of
forum of regulators, has an indirect role to play.
n Mr. Vijayanarasimha presented his view on current losses, regulatory cap of Rs4/
unit by KERC, reasons for lower T&D losses in his circle and scope for distribution
franchisee. He feels that the reason for the current health of SEBs is mainly due to the
power purchase cost, which accounts for almost 70-80% of the total cost. He indicated
that the regulatory cap of Rs4/unit does not act as a restriction. He feels that currently
MESCOM requires short term power only in the months of February, March and at
max, April. With a little bit of demand management, there might not be any requirement
of short term power, going forward. Most of the SEBs nowadays prefer buying short
term power on exchanges for few days rather than locking themselves for few months.
Apart from the loss reduction measures taken, one of the reasons for low T&D losses
in his circle (about 11%), is the consumer profile MESCOM has (almost no theft). On
the scope for distribution franchisee in the country, he feels that there are not many
circles (with high T&D losses and decent industrial consumer base - like Bhiwandi)
which will generate interest from private players.
n Mr. Rakesh Kumar presented his views on the current and future power prices and
power prices in different countries. He indicated that merchant power prices should
stabilize at Rs4/unit and should not go below this level. According to him, the cost of
power supply was Rs4/unit in FY05 and is Rs4.5/unit currently; therefore, it is not the
reason for increase in SEB losses and the reason lies somewhere else. Though he
feels that power prices in India (especially to industrial and commercial consumers)
is currently on the higher side, considering the cost of supply is increasing, tariffs are
likely to remain high.
n Mr. Shrikant Kulkarni presented his views on key issues like fuel availability and
blending possibilities in the event of shortages of domestic coal. He believes that fuel
availability definitely remains a huge risk for power developers and captive fuel should
be the strategy. Considering that Reliance Power has been blending imported coal in
its Rosa plant, he feels that about 30% blending (CEA also thinking on same lines) is
possible in a domestic coal based plant, keeping in mind technical and logistics
issues. He feels that for blending, not only imported coal but also washery rejects are
a possibility (already blending at Rosa).
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