Power: Discoms begin shaping up, more to fall in line

Next year, reforms in the electricity sector will be led by the distribution segment, with the benefits of the Centre's Rs 1.8-lakh-crore financial restructuring plan (FRP) starting to materialise in the form of improved financial health of distribution utilities. Also, with fuel supply issues with Coal India Ltd (CIL) addressed, it is hoped 2014 will bring long-awaited relief to generators.

In 2013, most states continued to sidestep political interference, revising retail rates, reducing commercial and technical losses and filing regular statements of annual revenue requirement. Also, ailing distribution companies in at least three states-- Rajasthan, Uttar Pradesh and Tamil Nadu - have readied plans to achieve break-even next year.

Distribution companies in these states issued bonds to lenders, backed by state government guarantees, taking care of half of their short-term liabilities; the other half was restructured by banks, wrapping up the bulk of the liabilities. Haryana, too, began issuing bonds.

These four states were among the seven that accounted for Rs 1.2 lakh crore of the overall Rs 1.9-lakh-crore debt of distribution companies.

Two states, Himachal Pradesh and Meghalaya, are finalising their FRP schemes. Bihar, Jharkhand and Andhra Pradesh were included after the Union Cabinet's approval for the revised FRP last month.

In 2013, generators saw the Central Electricity Regulatory Commission (CERC) allowing a historic compensatory tariff to Tata Power and Adani Power for their imported coal-based plants at Mundra in Gujarat. The order was seen by the private sector as a benchmark for contract renegotiation in the infrastructure sector. Currently, the regulator is hearing states' views on the recommendations of the Parekh panel, which may raise rates for projects by about 45 paise a unit.

Clarity on coal supply
Experts say the overall sentiment for the sector is better than a year ago. "For generation companies, there is better clarity on coal supply, particularly the signing of FSAs and the approval for case-II bidding guidelines.

For distribution companies, the FRP is being implemented and regular revision in retail tariffs happening across states. Therefore, generation companies have started getting timely payments," said Debashish Mishra, senior director, Deloitte.

The bidding and award of two ultra mega power projects (UMPPs), entailing a cumulative investment of Rs 50,000 crore, will be another defining development in 2014.

Currently, Power Finance Corporation is evaluating the initial bids submitted by nine companies for the Tamil Nadu project and seven for the Odisha UMPP. It expects to issue letters of intent to successful bidders in February.

EXPECTATIONS FROM 2014

• More states will accept the restructuring plan for discoms; Himachal Pradesh, Meghalaya, Bihar, Jharkhand and Andhra to restructure losses
• Tamil Nadu to become the first state to break even, as it raises rates to reduce losses
• Two 800-Kv transmission lines connecting the isolated southern regional grid to be commissioned in January
• Regulator CERC to announce final order on compensatory tariff in Tata and Adani cases
• Bidders to get UMPPs in Tamil Nadu and Odisha, entailing investment of about Rs 25,000 crore each