India Ratings projects 5-6.5 percent power generation growth

Assigning a stable to negative outlook to the power sector for the next fiscal, ratings agency India Ratings & Research (Ind-Ra) Thursday said power generation is likely to grow at five to 6.5 percent in 2014-15.

"Ind-Ra expects power generation to increase between 5 percent-6.5 percent year-on-year over FY15, in line with Ind-Ra's GDP growth estimate of 5.6 percent year-on-year," the agency said in a statement.

The outlook reflects the pending policy level issues, manifestation of risks undertaken in earlier years, mismatches in coal demand and supply and continued tariff pressures, it added.

The agency has maintained a "Stable Outlook" on its rated power sector entities for the next fiscal. It reflects the power firms' continued ability to manage issues associated with fuel and state power utilities due to a favourable tariff mechanism, comfortable liquidity and support from the central and state governments.

Ind-Ra said generation in the country would increase because of higher domestic coal availability after government initiatives in the coal sector and "higher availability and acceptability of imported coal."

Power generation could also improve on easing of the liquidity situation at the state power utilities (SPUs) level post financial restructuring package (FRP) implementation, the agency said.

The national context overall is one of precarious financial health of state-run distribution companies. These had a debt burden by end-March 2012, of a staggering Rs.246,000 crore, for which the government approved a restructuring package in September 2012.as it would lower back-down instructions and increase the ability to buy power.

"Moderate demand from the manufacturing segments could lead to the energy deficit remaining at 4.5 percent in financial year 2014-15," the report said.

It also said that given that general elections scheduled for mid-2014, many states could defer tariff finalisation or even consider reducing tariffs mainly through increasing subsidies.

The reports projects the sector would be driven by the government's initiatives to resolve key issues impacting it.