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Power: FY03 and beyond

Apr 2, 2003

As per the Economic Survey 2002-03, the installed capacity of power generation in the country stood at 106,812 MW by December 2002. India added 1,819 MW capacity between April Ė December 2002. Power generation in April-December, 2002 stood at 397.6 bn KWh (up 3.7% over the corresponding period in 2001). The growth in generation was largely led by Thermal generation, which grew by 6.3%. The overall Plant Load Factor (PLF) of thermal power plants has shown a consistent improvement from 64.7% in FY98 to just over 71% in FY03. This indicates efficiency in Indiaís generating capabilities. However, despite all the progress, the all-India energy and peaking shortages stand 7.5% and 12.1 respectively.

Financial health of SEBs continues to deteriorate. Barring SEBís of Himachal Pradesh and Maharashtra, all other states SEBís are loss making. The planning commission has estimated that in FY02, the commercial loss (excluding subsidy) of SEBs stood at a huge Rs 240 bn. Consequently, due to financial constraints all SEBs defaulted on payments central PSUs like NTPC and Power Grid Corporation and continue to accumulate arrears. The big reason for the SEBs financial dire straits is the climbing transmission & distribution (T&D) losses. The T&D losses are due to a variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing, and high pilferage.

With nothing really exciting happening on the ground during FY03, the 2 power stocks, namely Tata Power and BSES were largely lacklustre on the stock markets. However, operationally both companies saw some fundamental changes during the year. While BSES saw Reliance take management control of the company, FY03 saw Tata Power looking at hiving off its broadband business to Tata Teleservices. The Delhi Vidyut board was also privatised and both BSES and Tata Power managed to gain a share of that pie.

 28-Mar-02Mar-31-03 % Change
BSE Sensex3,4693,049-12.1%
S&P CNX Nifty1,130976-13.6%
Tata Power1131130.2%
BSES222215-3.0%

Seeing the distribution companies bleed in Orissa, both Tata Power and BSES were reluctant to merge the distribution companiesí accounts with themselves. As you may have noted that Reliance management has already taken the decision to hive off 8 BSES subsidiaries in a bid to clean up the balance sheet of ambiguities. Even Tata Power is now acting as only an investor in the Tata Groupís telecom venture and not as an active participant as was envisaged earlier.

Both companies are eagerly awaiting the passing of the Electricity Bill 2001, which is aimed at ridding the power sector of all its ills. Its not hard to see why. For one the bill seeks to do away with the compulsory licencing required to set up generation and distribution plans. The bill seeks to set up a central power grid, which may act as a market for buyers and sellers of electricity. But perhaps the most significant aspect of the bill is the fact that it requires the various state governments to sign up for corporatising their SEBs and therefore seek private participation in the distribution of electricity. This will bring about the necessary improvement in the distribution and transmission infrastructure of states and thereby nurse the SEBís back to financial health. Subsidised tariffs will also become a thing of the past.

FY04
The coming year is unlikely to be any different in terms of adding generating capacity and neither we expect the electricity bill to show anytime soon. Even when the bill is passed, it will take some time before its advantages begin to pick up pace. In that sense, Tata Power and BSES have nothing to offer. But both companies continue to expand their power assets across the length and breadth of India and in the longer term, the new Electricity Bill may give them the fillip they need to expand fast.

With India still having to generate 10,000 MW of capacity per year for the next 10 years to plug the demand-supply gap, the potential for this sectorís growth is immense, short-term lacklustre stock market performance notwithstanding.

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