Poor demand, finances of state utilities to hit NTPC and IPPs

Tariff revision not lone solution to rescue cash-strapped discoms

Despite improved coal supply, regulated player NTPC and independent power producers (IPPs) might continue to face weak demand and fall in plant load factor (PLF). The deteriorating finances of state electricity boards (SEBs) could further aggravate the situation.

In its research report, Religare said that in the first quarter of FY16, the PLF declined sharply by 660 basis points (bps) to 62 per cent. NTPC’s coal-based PLF fell a record 673 bps year-on-year (y-o-y) to 77.6 per cent and JSW’s by 900 bps drop to 75 per cent.

According to Ashok Khurana, director-general of Association of Power Producers, the viability of the entire generation segment (public or private) is impacted by low offtake of power by distribution utilities, leading to very high unrequisitioned surplus and low PLF.

“With increasing demand of the subsidised segment and in view of the increasing power costs, and flawed procurement mechanisms, it is a triple whammy for the distribution companies,” he said.

India Ratings & Research director Salil Garg said, “In my view, in the near to medium term, unless and until demand picks up, the present scenario will continue. There will be a further drop in PLF, but not as sharp as witnessed in the first quarter. PLF will remain subdued.”

He noted that despite power availability, the demand has been quite weak. This is due to economic slowdown and slump in industrial activity. This has led to a sharp decline in PLF. Further, due to poor finances, the SEBs have a limited capability to buy additional power as banks are reluctant to fund their losses.

Conventional power generation is in dire straits, according to Kameswara Rao, partner (energy, utilities and mining) at PwC, with almost every group either suffering delayed projects, stranded assets, under-recovery in tariffs or historically low offtake.

This continues to be a drag on almost every power company’s results. “State governments must bite the bullet to revise residential and farm tariffs periodically to cover inflation, and rope in the private sector to curb discom losses. Inaction is hurting both banks’ asset quality and manufacturers’ competitiveness,” he said.

Both Khurana and Garg observed that just increase in tariff will not solve the problems but there is a need to make power sector consumer-centric which can be done by effecting efficiency across the entire value chain - fuel, fuel transportation, generation, transmission; and reduction of high T&D losses.