Fuel availability, rising cost issues still loom large over major power players

Written by Viraj Nair | Mumbai | Updated: Nov 17 2012, 08:48am hrs
The July-September financial reportcards of India's major power producers, such as Tata Power and Adani Power, reflect that issues such as fuel availability, tariff renegotiations and pass through of rising costs still loom over industry.

Stagnating production at Coal India and lower gas output at the country's flagship KG-D6 block have led to shortages of fuel used in conventional power plants, forcing power producers to increase imports and driving up costs.

Tata Power chairman and managing director Anil Sardana recently told FE that changes in laws and regulations in coal exporting countries, such as South Africa, Australia and Indonesia, had contributed to the spike in fuel costs. He called the price increases a "well-organised, well-thought process, hinting at an element of cartelisation.

Power producers have not been able to pass on increased fuel costs to consumers because they had committed to selling electricity under long-term power purchase agreements (PPAs) at a price which didn't account for higher fuel costs.

Tata Power, India's largest private power company, reported a consolidated net loss of R83.80 crore. It was hit by R250-crore impairment charge for its unit, Coastal Gujarat Power (CGPL), the holding company for its 4,000 MW Mundra plant, where it is seeking to renegotiate the tariff to pass on increased costs.

Meanwhile, Adani Power, in which Adani Enterprises currently holds a 68% stake, reported a consolidated net loss of R261 crore against a profit of R173 crore in the year-ago period, hit by higher fuel costs.

Anil Ambani's Reliance Power, however, bucked the trend by trumping market expectations with a 2.1% net profit at R240 crore as higher generation capacity helped it overcome a spike in fuel costs. The company's 40 MW Dhursar solar plant in Rajasthan generated a record 13.8 million units in the latest reported quarter, resulting in a net profit of R6.6 crore.

India's power producers have also been increasingly tapping into renewable sources of energy, such as wind and solar, to help combat fuel shortages.

R-Power said its flagship 4000 MW Sasan power project in Madhya Pradesh is set to be commissioned five months ahead of schedule. The Sasan project had come under scrutiny earlier this year after the CAG alleged that R-Power unduly benefited from the use of surplus coal from mines it was allotted when it won a competitive bid in 2007.

The allocation of coal blocks to private players has been shrouded in controversy after the CAG questioned the manner in which coal blocks were awarded between 2004-2009.

"Amidst the recent coal block scam and controversies, to generate genuine interest among the developers govt should finalise a transparent and workable policy prior to auctioning of the blocks," Equentis Capital analysts said in a note dated November 9.

Recent softening in international coal prices may provide some relief to power producers in the coming quarters. JSW Energy, which is heavily reliant on imported coal, said it would benefit from softening of coal price in the current third quarter after reporting a July-Sept net profit of R254 crore compared with a net loss of R109 crore in the year-ago period.