State boards to ink long-term power pacts with firms

After much delay, some state electricity boards (SEBs) have decided to buy from power generation companies on a long-term basis. The boards of Jharkhand, Punjab and Maharashtra might sign deals with JSW Energy, Jindal Power and Essar Power, which have been looking for such opportunities, to get supply for 10-12 years.

"SEBs have been delaying their plans to buy long-term power, so we are selling at much shorter terms," said Sanjay Sagar, chief executive officer of JSW Energy, at a meet to declare the company's quarterly results. The firm sells about half of its power through the merchant route.

According to experts, such long-term agreements would bring stability to generators, helping them keep average sales constant. "Now that the boards have cleared the process of calling for tenders, it would be a great positive for private sector power generators," said Rupesh Sankhe, power analyst at Angel Broking.

SEBs have been under pressure due to their own credit crunch. Unable to raise retail power rates, they had piled up huge loans. In the past year, many sick SEBs have progressively increased rates, and are now able to buy power.

"Punjab and Haryana had earlier called for case-1 bids (long-term power contracts) to be contracted. But they were stuck at re-negotiations, and there had been a lull in the market. Now, with some of the boards opening up, it will bring some relief, as there is huge demand for such bids," said Umesh Agarwal, associate director of PricewaterhouseCoopers.

This is a welcome change for the sector, battling issues like coal availability. Analysts, however, say power demand is still subdued, even as the deficit between demand and supply is filling up. It is currently low, between three and four per cent. This would mean capacity utilisation of power plants are still low.

"Demand is not picking up and it will not until economic activity increases and so does the rate of growth. Though some issues related to fuel supply has been solved, and though power plants will be able to produce more," said Agarwal.