Implementation of measures key to power sector revival: Icra

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SummarySteep hikes in tariff effected in many states in recent past and Centre's debt restructuring of debt-laden SEBs.

Steep hikes in tariff effected in many states in recent past and Centre's debt restructuring of debt-laden SEBs notwithstanding, an Icra report has said that the proof of these measures lies in actual implementation.

Noting that the formation of the Cabinet Committee on Investments (CCI) is a big positive for the power sector as many large power projects are still on paper for want of green clearances and lack of land availability, Icra analysts Sabyasachi Majumdar and Girishkumar Kadam said the CCI should be able to clear greenfield projects in a timely manner.

"However, its (CCI's) actual efficacy remains to be seen," they said.

On rescheduling of the validity scheme to March 31 from December 31 last, the report says there could be further delays in submission of the financial restructuring proposal by discoms, due to challenges in seeking the consent from states.

"Nonetheless, the debt restructuring is inevitable for the stressed utilities, as alternate options are limited, given the tightening of loan conditions by lenders. However, timely implementation of this scheme and political will of the states to comply with the stipulated conditions would be a key challenge," according to the report.

Lauding recent steep tariff revisions by most of SEBs following the ruling by the Appellate Tribunal for Electricity (ATE) in November 2011, the report says this is "the key positive for the sector, given the fact that tariffs were not revised in the past for a prolonged period in some states as well as with significant delays in many other states."

Tariff petition filing for FY14 has been done by eight discoms so far. Also, a framework for fuel & power purchase cost adjustment has been approved in many states in the past 12 months.

But it warns that notwithstanding these positives, tariff determination for FY13 in many states have not been fully cost-reflective so as to avoid a tariff shocks, which has led to creation of additional uncovered revenue gaps or "regulatory assets".

The report says, "the quantum of tariff hikes, the manner in which regulatory assets are proposed to be recovered and timelines in terms of filing the tariff petitions and finalisation of tariff orders remains critically important, going forward."

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