Power stocks were on a roll on Wednesday on reports that Coal India will sign fuel supply agreements (FSA) with private sector power generators to cater to their requirements for coal.
On the BSE, Adani Power was up 13.08 per cent at Rs 78.65 followed by Reliance Power, which rose 12.74 per cent to close at Rs 122.55. JSW Energy gained 7.32 per cent at Rs 67.45, while Tata Power rose six per cent to close at Rs 110.45.
The benefits
Power equipment makers such as L&T and BHEL too joined the bandwagon. L&T was up 5.06 per cent at Rs 1,449.10 and BHEL closed 4.53 per cent higher at Rs 276.95. Coal India closed 1.45 per cent higher at Rs 339.45.
A statement from the Prime Minister's Office said, Coal India will sign FSAs with power plants that have entered into long-term PPAs (power purchase agreements) with power distribution companies and have been commissioned/ would get commissioned on or before March 31, 2015.
For power plants that have been commissioned up to December 31, 2011, FSAs will be signed before March 31, 2012. The FSAs will be signed for full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years.
In case of shortfall in fulfilling its commitment under the FSAs from its own production, Coal India will arrange for supply through imports or through arrangement with State/Central PSUs who have been allotted coal blocks.
The Government said the move would benefit projects totalling 50,000 MW.
Mr Gaurav Dua, Head of Research, Sharekhan, said power generators will now have some kind of clarity and certainty in terms of fuel security for upcoming projects.
However, most analysts were sceptical of the outcome of the initiative, despite the initial euphoria.
IMPEDIMENTS
Rather than solving the issue it is adding a twist to it. The major issues are logistics, storage and transportation, especially to the hinterland. Even for projects close to the shore, inadequate port facilities were bound to throttle supply movement.
They said Coal India chairman is on record stating that shortage of rakes has been choking coal movement, a major issue hampering additional production as well. Further, even if Coal India imports in large quantities, logistics was such that it was very difficult to ensure it reaches the consumer.
It would have been better had the ministries of the Environment and Forests, Mining and Railways and other agencies been roped in to devise ways to speed up clearances for environment, mines and streamline mining policies, besides ensuring tracks are laid with adequate supply of wagons to reach the power generators' doorstep, they felt.