New policies for power may reduce cost burden on discoms: Icra

Recent policy measures announced by the Centre including flexible utilisation of domestic coal linkage and procurement of short-term power through reverse auction are favourable for state discoms as they is likely to reduce the cost of power purchase, says a report.
According to Icra, flexible utilisation of coal linkages by state-owned or central utilities would result in an optimal utilisation of linkage coal from mines and help lower transportation cost of domestic coal.
"Distribution utilities will benefit from competitive and transparent price discovery in the reverse auction based electronic platform for procurement of short term traded power," Icra Ratings Senior Vice President Sabyasachi Majumdar said in a statement.

He said the continued improvement in domestic coal availability is positive for the sector, given that it has substantially mitigated both coal supply risk and the risk of under-recovery in fuel cost (due to dependence on costlier coal imports) for projects with competitively bid tariffs and having fuel supply agreement with Coal India (CIL).
Majumdar, however, said some of these cost savings could be offset by upward revision in domestic coal prices by CIL in May, which is expected to increase the cost of power generation by 9-10 paisa/unit for coal based IPPs much of which is likely to be passed onto discoms.

"Thus, timely pass-through by way of fuel and power purchase cost adjustment framework by state owned discoms remains important from their cash flow perspective," he said.

According to it, only 16 out of 29 states have issued tariff orders for financial year 2016-17 and some of the states which haven't issued tariff orders include states with highly financially challenged utilities, like Tamil Nadu, Uttar Pradesh and Rajasthan.
Majumdar also said timely implementation of Ujwal Discom Assurance Yojana by discoms in other states as 13 states have signed tripartite agreements out of the 20, which have given in-principle approval so far, remain critical for sustained improvement in the financial position of the discoms.

"For discoms such as for Bihar, Haryana, Jammu and Kashmir, Rajasthan and Uttar Pradesh which have signed MoUs and are dependent upon substantial funding support from their respective state governments, their ability to improve the operational efficiencies in line with targets as well as timeliness in release of such funds by state governments would remain extremely important," he added.