Prime Minister Manmohan Singh recently commented on the need to rationalize energy prices in the country, which is understandable. Perhaps, people will have to accept the hike in tariffs if the sector has to recover from the perpetual financial problems that plague it. In the past six months, several state regulatory bodies have approved a tariff hike in the range of 5 to 15 per cent in their respective states. And, many other states such as Uttar Pradesh, Maharashtra, Andhra Pradesh, and Karnataka along with few others are in the process of raising tariff. The move has been taken positively by the industry, while on the consumer end it was not taken very well received.
here is no denying that it is a significant challenge to raise the prices of mass consumption products such as electricity by any government at time when general elections are a year and half away. Electricity price hike in a phased manner has been recommended by the sector observes for reigning in long term stability. It has also become inevitable to bring the financial health of the state utilities on track.
Nevertheless, with the government plan for debt restructuring of state discoms coupled with tariff hike in states, hope for bringing back on track the financial health of discoms has revived. But there are several other hard reform measures in the energy domain that must be initiated. Although, talk for fast reforms have already started simmering from every corner of the industry. Various options are being explored such as opening up coal mining sector and allow free mining of coal as Coal India is unable to meet the domestic demand. Another option for moderating domestic coal prices by pooling is also being weighed.
A similar model has been adopted by the solar energy sector and has been largely successful. Under the first phase of the National Solar Mission policy framework, power produced by NTPC has been pooled with the power produced from solar plants, which is comparatively expensive. In another move, Central Electricity Authority has asked all generation firms to evolve a crisis management plan to tackle power failure in future. So to surmise, some positive developments are on the anvil that might help ameliorate upon the prospects of the power sector.
In view of these developments, India Ratings has maintained a Stable Outlook on its rated power sector entities for the year. India Ratings-rated power producers include NTPC (‘IND AAA’/stable), NHPC (‘IND AAA’/ Stable), Rural Electrification Corporation (‘IND AAA’/Stable), and Reliance Infrastructure ‘IND AA’ /Stable. The Fitch group company, however, expects merchant power tariffs to rise during 2013. With the liquidity profile of the state power utilities’ post the tariff hikes improving, their ability to buy from merchant power will also improve.
Through our cover story in this issue, we have made efforts to assess the potential and prospects of power trading in the country. Apart from this, some industry experts and power players have shared their view points with us on various subjects including disinvestment of PSUs, balancing finance, and energy efficient models.
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