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Giving the go-by to the myriad concerns bogging them down, power stocks rallied in the run-up to the May 2014 elections. Hopes of reforms by the Narendra Modi-led Government spurred this rally. Since then, it’s been an action-packed (and also an auction-packed) year for the sector, with many developments on the fuel front. Last year’s de-allocation of coal blocks by the Supreme Court, after the allocations were found to be illegal, created a lot of uncertainty.
Auction of these coal blocks, a chunk of which was reserved for the power sector, has helped lift the single biggest overhang on the sector. The launch of an online Coal Projects Monitoring Portal is also supposed to help speed up the implementation of coal projects. The auction of subsidised imported gas for stranded gas-based power plants too has brought some relief, even though partial, for fuel-strapped companies.
The government introduced changes that impacted some thermal power stations. Companies can now undertake capacity expansion without consent from power procuring states.
A major initiative has been the introduction of the Electricity (Amendment) Bill, 2014, which once passed will bring in the much-needed reforms. Among the changes proposed are determination of tariffs in a way that ensures that all prudent power purchase costs of a state distribution utility (SEB) are recovered. Tariff revisions that fall far short of increase in costs have strained the finances of SEBs, thereby constraining the demand for power from generating companies. The Bill also proposes timelines for the sector regulators for disposing tariff-related cases.
The Coal Mines (Special Provisions) Act, 2014, which opens the way for the private sector to enter coal mining, can usher in the much-needed efficiency in the sector. Any meaningful impact of these initiatives would, however, be felt only over the long run. Until then, the sector will be plagued by several concerns.
Among the safe bets is the stock of Power Grid Corporation of India. It earns an assured regulated return on its transmission projects and is shielded from most concerns ailing the sector. NTPC too is relatively better placed, thanks to an assured return on equity on its projects, access to adequate coal and a stable balance sheet.
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