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News Brief | August 2013

Stable outlook predicted for power sector

Higher fuel costs and weak financial profiles of power distribution companies in India could pose major challenges to the sector, says India Ratings in its latest report. However, it maintained stable outlook for the power sector for the second half of the year. The agency expects the sector to get benefited from favourable tariff mechanism, comfortable liquidity and support from the central and state governments. However, it noted that recent rupee depreciation will affect the cash flows of the power plants with limited or no pass-through of energy and capacity charges as part of tariff. Fuel costs and interest outgo will be higher for such independent power producers (IPPs) due to higher cost of imported coal and largely un-hedged foreign currency debt, respectively, it said. Gas-based generation cost is likely to increase by 49 per cent to Rs 6.21 per unit due on account of the recent increase in domestic gas prices to $ 8.4 per mmbtu from $ 4.2, which will be applicable from April 2014, the agency said.
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