The implementation of reforms at the State power utility level and resolution of fuel shortages concerns are vital for power sector growth, according to India Ratings, a Fitch Group company.
The rating agency expects that its rated entities will manage the key sector risks in 2013. It has therefore maintained a ‘Stable Outlook’ on its rated power sector entities for the year.
The changes in terms of stoppage of short-term credit pressure from the Central Government resulted in some reform measures at the State level. This includes tariff hikes and restructuring package.
The tariff hikes coupled with operational efficiencies and implementation of the restructuring package is key to turnaround of the distribution companies. The tariff hikes alone might not be sufficient to cover the current revenue gap in some cases.
The debt restructure helps align the interest of the States with the discoms by shifting 50 per cent of their short-term loans to State governments. The banking system will have to absorb this.
The Government directive to CIL for fuel supply has some relief, but the supply seems to be quite challenging. Though this has provided some relief, the risk of domestic coal availability seems to be high for projects commissioned after financial year 2009.
CIL will have to increase its supply to the power sector to 436 million MT by FY15 from 312 m MT in FY12 with a CAGR of 12 per cent. This would lead to increased use of imported coal.
The fuel starved gas-based power plants will continue to be under stress.
India Ratings, however, expects merchant power tariffs to rise during 2013.