|Saturday, 01 October 2011 00:00|
With power sector losses up 2.7 times in 5 years, and projected to rise 4.3 times between 2008-09 and 2014-15 (the 13th Finance Commission estimates losses will be R1,16,089 crore in 2014-15), it is obvious why the sector is looking forward to the Shunglu Report on the sector, expected in the next few weeks. If the current pace of capacity addition is to continue, indeed increase, it is obvious a solution is needed and the hope is that Shunglu will provide that. Possible solutions being talked of are, much like they were a decade ago, a combination of haircuts by banks and other lenders and a larger incentive-linked reforms programme funded by the Centre. Several state governments are already defaulting on their subsidy payments—no payments were made in states like Maharashtra and West Bengal in 2008-09 and 2009-10.
In this context, a recent report by broking firm Motilal Oswal has some interesting things to say. For one, based on the discussions the brokerage had with government officials, it appears the central government plans to be more strict in future—in which case, if state governments want power, they’ll probably have no option but to get their act together. After pointing out that around 41,000 MW of power has been added to capacity in the 11th Plan, the report says that just 38% of this year’s capacity has been added so far. What is more interesting, however, is that according to the figures Motilal Oswal has, the levels of incremental power sector losses appear to have slowed a bit. Also, 22 states have raised tariffs over the past 18 months, and this includes the 10 highest loss-making states. In 18 states, fuel adjustment has been made automatic without regulatory approvals. In Rajasthan, for instance, a hike of 23% has been approved. But given that this has taken place after a six-year gap, it is not clear just how much this will help since the backlog of losses has gone up dramatically, and the hike is not retrospective—the arrears till FY11 are R21,350 crore. Along with the hikes, no matter how modest, the fact that prices of short-term power are down—22% in the case of bilateral deals and 17% for all short-term deals, over a year ago—is also a big help. In short, the lesson is that there’s a lot to be done, but some steps have been taken.
Also interesting in this context is the report in FE a few days ago that the government plans to bring in commercial miners into the coal sector, though in a covert fashion. Miners who can sign back-to-back deals with power plants, for instance, may be allowed to bid for coal mines. Given how the shortage of coal has plagued the sector, this is good news.