It will be sometime before the light shines on the country’s power sector. A Crisil report says that 46,000 mw of thermal capacities face viability risks; and that the sector will be constrained by discom’s weak financial health and coal-block auctions. Worse still, it says nearly Rs 75,000 crore of loans — or nearly 15 per cent of the aggregate debt to power generation companies — are at risk of turning delinquent in the medium term. And close to Rs 1.9 lakh crore of loans to six weak discoms, for which the moratorium ends in the next 18 months, are at risk if timely support is not extended by the central or state government.What went wrong? Exactly a year after Crisil warned on the state of affairs of the power sector, on 5 October 2012, the centre announced a financial restructuring package (FRP) for discoms under which short-term debts were converted to long-term loans backed by state government guarantees. The FRP was for regular tariff hikes and reduction in AT&C (aggregate technical and commercial) losses. “While tariff hikes were high in the first two years following the FRP, things have fizzled out since then. On the AT&C front, there has hardly been any progress,” says the Crisil report.It lists how a vicious cycle was set off. Because discoms remain financially fragile, they are chary of committing to long-term power purchase (PPA)agreements; lower power purchases by discoms, and inadequate coal and gas supplies, have led to suboptimal plant load factors at generating companies, especially the new projects. Further, tariff aggression shown during competitive bidding has resulted in poor cash flows, which has cramped their ability to service debt despite lower cost of imported coal. The weak generating companies with no long-term PPAs defeat one of the objectives of FRP, which is to progressively reduce short-term power purchases by state discoms.It also highlights the “winner’s curse” in coal block auctions. Post the de-allocation of coal blocks by the Supreme Court in September 2014, the centre went in for auctions where companies bid very aggressively for the nine coal blocks that had fuel to fire around 6,500 mw. “This approach showed strategic fuel security had become more important than profitability,” notes Crisil. Bidders who had agreed to a zero fuel charge in their PPAs, thus foregoing mining costs, also agreed to pay a forward premium of Rs 100 to Rs 1,010 per tonne to the concerned state government. With mining costs and forward premiums not recoverable through the variable charge component in PPA, bidders were exposed to the risk of under-recovery.All this will now come home to roost in the financial sector. The Reserve Bank of India’s Financial Stability Report released in June had given a heads-up: Rs 53,000 crore of loans to seven state electricity boards have a “very high probability” of turning into dud-loans at end-September 2015. Acche din, indeed!— Raghu Mohan(This story was published in BW | Businessworld Issue Dated 24-08-2015)
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Sutanu Guru on why a decline in coal imports is both good and bad news In July, 2015, coal imports declined by 11 per cent to 19.3 million tons. This is the first time in more than one year that coal imports have declined. This seems in tune with the claims made by Union Coal Secretary Anil Swarup in July that the next three months will see a dramatic fall in coal imports. The steep decline in July also seems to in tune with a forecast made recently by Union Power & Coal minister Piyush Goyal that the current financial year will see an overall decline in coal imports to 210 million tons. Why should Anil Swarup and Piyush Goyal be happy with the steep decline in coal imports? According to them, one key objective of the Modi government when it came to power was to execute a strategy to dramatically increase domestic coal production in the country. Indeed, going by government statistics, coal output from state owned Coal India Ltd and other private producers increased by more than 40 million tons in the previous financial year. This increased domestic availability apparently led to a lower dependence on imports. The power and coal ministry has ambitious targets of almost doubling coal output in the country by 2019. For many years, the steep rise in coal imports by India had only become an embarrassment, but also a symbol of the economic policy failures of the UPA government. A brief recap of recent history is telling. In January, 2012, there were media reports that the then Joint Secretary Pulok Chatterjee of the PMO was given a specific task of heading a team to look into the problem of stagnating coal production and crippling power shortages. A few months after that, India had to face humiliation and derision as the entire grid in North India collapsed. From about 30 odd million tons a year of coal imports when he took over as Prime Minister in 2004, Dr Manmohan Singh left office in 2014 with annual coal imports in excess of 200 million tons. The relentless rise in imports continued even after Narendra Modi took over as PM and crossed 250 million tons in 2014-15. Not many mind the fact that India imports almost 80 per cent of its oil and gas needs. The country simply doesn’t have enough “discovered and recoverable” oil and gas. But India happens to have the third largest reserves of coal in the world. To import such massive amounts of coal when you are sitting on mountains of reserves is indeed scandalous. Add the coal block allocation scam that hit the UPA government and the dismal picture is complete. To that extent, the government deserves to pat itself on the back for at least reversing the trend of coal imports rising year after year. Yet, it is not all good news. The steep decline in imports in July reflects another ongoing crisis in the Indian power sector. Saddled with unpaid debts and dues in excess of Rs 4.5 lakh crores, power distribution companies in India simply do not have the cash to pay for power purchases. This, in turn, is forcing power generation companies to scale down output. The decline in July is evidence of that. Clearly, Minister Piyush Goyal has perhaps achieved just about 25 per cent of his ambitious targets related to coal and power. He has a little more than three years to achieve the balance 75 25 per cent.
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India's coal imports fell 11 percent to 19.3 million tonnes in July from a year earlier - the sharpest and the first drop in more than a year - as local supplies rose and money losing power generators held up purchases, commodities trader mjunction said. Prime Minister Narendra Modi has been credited with the turnaround in output by state-run Coal India, but he is now grappling with power distributors that are so deep in debt that they can't pay to buy power from generators. Power generators, as a result, are operating both below their capacity and last year's levels. "The demand for electricity from distribution companies is not growing the way it was projected to grow," mjunction Chief Executive and Managing Director Viresh Oberoi said in an email. "The poor financials (of distribution companies) that reduced their purchasing capacity is also one of the reasons for lower-than-expected electricity generation." India, the world's third largest buyer of foreign coal, imported 20 percent less of thermal coal used in power generation in July from a year ago, according to provisional data from mjunction. The last fall in total coal imports was in April 2015. Oberoi expects thermal coal imports to fall further, a prediction likely to cheer Coal Secretary Anil Swarup, who told Reuters late in July imports will come down "dramatically" in the next two to three months. Coal and power minister Piyush Goyal forecast imports will slide 3 percent in the year to next April, to 210 million tonnes, but government officials said actual purchases could be much lower. Government data on coal imports generally lags and varies from data from private firms such as mjunction, which collects information from more ports and includes additional coal grades. (Reuters)
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The tanker segment will remain an exception due to its better demand-supply situation, reports Arshad Khan Citing weak global trade growth and persistent overcapacity, India Ratings and Research (Ind-Ra) has maintained a 'negative-to-stable' outlook for the shipping sector for the current financial year. "The performance of dry bulk and container operators is likely to continue to be affected by weak global trade growth and persistent overcapacity, while the offshore segment will face the negative impact of lower crude oil prices," the rating agency said in a statement. The agency, however, believes that the tanker segment, which accounts for a majority of the Indian fleet will remain an exception due to its better demand-supply situation. The rating agency further assigns sub-sector outlooks for FY16 as follows: Stable outlook for tanker segment: Global demand for tankers increased in the first half of FY15 as the sharp drop in crude oil prices resulted in floating storage and onshore stockpiling. The rates, however, will come down gradually during the year as demand will not sustain at the current artificially high levels. Nevertheless, the decline will be limited only to moderate levels as the fundamentals of the segment have improved over the last couple of years with an improving demand-supply scenario. Global capacity additions over the last two years have been only marginal (FY15: 2.2 per cent; FY14: 0.2 per cent). Negative outlook for offshore segment: Exploration and production companies globally have suspended or curtailed expansion plans due to lower crude oil prices, which has impacted the demand for vessels in the offshore segment, leading to lower day rates and utilisation levels globally. The operating performance of companies in the segment is thus likely to weaken in FY16. Negative outlook for dry bulk segment: The oversupply in the dry bulk segment along with weaker demand conditions particularly in China kept freight rates low throughout FY15. The agency expects the segment to be under pressure again in FY16 as overcapacity will persist and demand growth will remain subdued. Negative outlook for container segment: Continued increase in global container capacity (FY15: 6.2 per cent; FY14: 5.6 per cent) coupled with subdued demand conditions have led to a decline in container freight rates across most routes since the start of 2015. As a result, the operating margins of container operators will decline in FY16. Impact on credit profiles: The agency expects the leverage indicators of shipping companies to remain high in FY16 as performance across most segments will be subdued. The credit metrics of companies in the offshore segment will weaken in FY16 as their margins are expected to decline.
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Oil extended losses to multi-month lows on Monday (3 August) on worries of oversupply as OPEC pumped at record levels in July, while weak China data stoked concerns about slower growth at the world's second largest oil consumer. Oil output by the Organization of the Petroleum Exporting Countries (OPEC) reached the highest monthly level in recent history in July, a Reuters survey showed, with Saudi Arabia and other key members showing no sign of wavering in their focus on defending market share instead of prices. The lack of a plan by OPEC to make room for the return of more Iranian oil further fuelled supply worries. Iran expects to raise output by 500,000 barrels per day (bpd) as soon as sanctions are lifted and by a million bpd within months, its Oil Minister Bijan Zanganeh has said. "The market seems to again focus on the supply situation ... one of the difficulties is that Iran may be coming back and there is no obvious sign that OPEC will make room for them," Ric Spooner, chief market analyst at CMC Markets in Sydney said. Brent fell 50 cents to $51.71 a barrel by 0643 GMT after touching an intraday low of $51.50, the lowest since Feb. 2. It is on its longest weekly losing streak since late 2014. U.S. crude fell 39 cents to $46.73 a barrel after hitting the lowest in four months at $46.35. Front-month prices lost 20.8 percent in July, the biggest monthly drop since October 2008. Technical charts showed that Brent could fall further towards $50 in the near term while West Texas Intermediate (WTI) could head to lows of around $42.03 if it breaks a support level at $46.40, Barclays analyst Lynnden Branigan said in a note. Hedge funds and other speculators have slashed their bullish exposure to WTI to the lowest in nearly five years, trade data showed on Friday, as local drillers continue to add rigs and pump at full throttle despite a global oil glut. "The recent recovery in the oil rig count supports our expectation that U.S. producers can and will ramp up activity with WTI prices near $60/bbl, given improved returns with costs down 30 percent," Goldman Sachs analysts said in a weekly rig count report. "The current rig count implies that U.S. production will sequentially decline in 3Q15 although continue to grow in 2016." Growth at China's big manufacturing companies unexpectedly stalled in July as demand at home and abroad weakened, an official survey showed on Saturday, adding to worries from a recent slump in Chinese stock markets.(Reuters)
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Solar power promises to change the way electricity is generated in the country, and it has an impact on the real estate sector as well, writes Ashwinder Raj SinghWith PM Narendra Modi raising the target of solar electricity generation from 20,000MW to 100,000MW by 2022 at a cost of $100 billion, the market for everything solar has suddenly come to life. As pollution and the rising cost of power hits the consumer, more and more people are becoming attuned to living a 'green' life. Keeping this in mind, many upcoming residential projects in cities across India are using solar power as their primary energy source. Homeowners can also install their own solar panel-based systems to benefit from this technology if it has not been installed a project level. Solar Systems For Individual HomesFirstly, a buyer has to decide what his energy requirements are based on electrical equipment in use in the house. A solar system is good enough for major electrical appliances except for water heaters and air conditioners, for which separate, higher-capacity solar panels are available. A solar panel works best on a flat terrace, rather than on slanting surfaces. To access maximum sunlight, the panel should be placed away from shadows.Cost of Installation and MaintenanceEven though the upfront cost of installing a solar system is on the higher side, it pays off in the long run and eventually proves economical compared to conventional means of power. A roof-top solar system will cost approximately Rs. 1 lakh per KW (this cost is excluding the cost of batteries) before various incentives offered by different states and electricity boards. It has a life of 25 years and will deliver 90% efficiency in the first 10 years of installation, and about 80% from years 11-25. Batteries account for almost 30 per cent to the cost of the total system.To generate 2000 watts of electricity, one would need around 200 sq. ft. of space on the terrace. As far as maintenance is concerned, the only cost incurred in a good quality solar system is that of changing the battery, if it is a battery-supported panel. Otherwise, the solar panels are totally maintenance-free except for regular cleaning to remove dust, bird droppings, etc. Tips For HomebuyersWhile planning to buy a new house in a society that offers solar power:Calculate the cost of solar power generation and compare it with energy rates of the utility company in the area.Ensure that branded and high-quality solar panels are installed at non-shadowy place, and that there is a proper maintenance scheduleIf battery-supported panels are used, ensure that the distance between panel and battery is low, as energy is lost with longer distances. It is beneficial to have solar powered batteries for best results.Ask about the expected life of the solar panels, and the warranty given on the system.The other components of the system - inverter, wires, etc. should be of top quality, as lower quality will lead to faster wearing out and add on to the maintenance cost. For inverters, the best option is a pure sine wave model. This is slightly more expensive, but very efficient and long-lasting.Capitalizing On SubsidiesSince the cost of batteries is prohibitive, various state governments and electricity boards are offering subsidies along with special deals. Any surplus power that a residential solar panel generates can be sold back to the government-operated grid at good prices. For example: if the building’s requirement is 5 units of power and the solar panel generates 7 units, the extra two units can be sold back to the grid. On rainy our cloudy days, if only 4 units are generated, the additionally required 1 unit can be sourced from the grid, which is chargeable. However, at the end of the month, if the net outage of power towards the grid is more than inflow, the society or individual home owner stand to make a profit.Performance So FarGujarat has taken the lead in solar power generation, and is ahead of all other states with a commissioned capacity of 929MW, followed by Rajasthan at 840MW generation. Madhya Pradesh, Maharashtra, Karnataka, Punjab and Haryana are now coming out with very aggressive solar power policies focusing on not only giving massive subsidies of as much as 30% on installation, but also attractive buyback offers on power.Going forward, solar power is going to make a decisive change in consumers' strategies for buying homes. For developers, it has become imperative to include solar power generation as part of their project cost, and to install the best possible systems to attract potential clients who are willing to pay a bit extra for living in environment-friendly homes.The author is CEO - Residential Services, JLL India
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The National Highways Authority of India (NHAI) has invited tenders for widening of the 28-km national highway 24 from Nizamuddin Bridge in Delhi to Dasna, a move which will help decongest the stretch. The estimated cost of the project is about Rs 3,064 crore and the construction period is two-and-a-half years, an official statement said. "Six of these 14 lanes (three on either side) will be an access control expressway while the remaining eight lanes (four on either side) will be normal highway," it said. It will help ease traffic in Delhi, Ghaziabad and Noida. The 16-lane project will include six-lanes as expressway, making it an access-controlled highway. The widening work is part of the Delhi-Meerut expressway project. (PTI)
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Former Jharkhand Chief Minister Madhu Koda, former coal secretary H.C. Gupta and seven others were on Friday put on trial by a special court in connection with a case pertaining to alleged irregularities in allocation of a coal block. Special Central Bureau of Investigation (CBI) Judge Bharat Parasar also framed charges against former Jharkhand Chief Secretary A.K. Basu, two public servants - Basant Kumar Bhattacharya and Bipin Bihari Singh - Vini Iron and Steel Udyog Ltd (VISUL), its director Vaibhav Tulsyan, Koda's alleged close aide Vijay Joshi and chartered accountant Navin Kumar Tulsyan in the case. The case pertains to alleged irregularities in allocation of Rajhara North (Central and Eastern) coal block in Jharkhand to VISUL. All these accused did not plead guilty to the charge framed against them and claimed trial after which the fixed the matter for August 17 for admission/denial of documents by them. "Separate charges against various accused persons have been framed. All the accused persons did not plead guilty and claimed trial," the court said. The court had ordered to put these accused on trial for the alleged offence of Section 120-B (criminal conspiracy) of the IPC. The court said Gupta also prima facie committed offence under section 409 (criminal breach of trust by public servant) of the IPC while Vaibhav Tulsyan, Joshi and VISUL prima facie committed offence of cheating under section 420 of the IPC. The charges under relevant provisions of the Prevention of Corruption Act were framed against five public servants -- Koda, Gupta, Basu, Singh and Bhattacharya. On July 14, the court had ordered to put these accused on trial noting that various acts of omission and commission committed by the accused prima facie made it clear that they had conspired with a "sole objective" to accommodate VISUL in Rajhara North (Central and Eastern) coal block in Jharkhand. The CBI, in its charge sheet, had said that VISUL had applied for allocation of Rajhara North coal block on January 8, 2007 to the Ministry of Coal. The CBI had alleged that although Jharkhand government and the Steel Ministry did not recommend VISUL's case for the coal block allocation, the 36th Screening Committee recommended the block to the accused firm. (PTI)
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