The government’s two-pronged approach to set the power sector on the right track may not yield much result with India Ratings and Research, an arm of global rating agency Fitch, maintaining the fuel risk in the power sector will continue this year. India Ratings, however, expects merchant power rates to rise during 2013.
The Fitch group company sees implementation of reforms at the state power utility (SPU) level, as well as of those initiated to mitigate fuel shortages, as key issues in the power sector growth.
The agency expects its rated entities to manage the key sector risks in 2013, considering a favourable rate mechanism, their comfortable liquidity and support from the Central and state governments. Therefore, India Ratings has maintained a stable outlook on its rated power sector entities for the year. India Ratings-rated power producers include NTPC, NHPC, Rural Electrification Corporation, and Reliance Infrastructure Limited.
The stoppage of short-term credit from the banking system and pressure from the central government resulted in some reform measures at the SPU level in 2012 such as tariff hikes and restructuring package. However, the ability to further increase tariff may have reduced,” Salil Garg, director (corporates), India Ratings and Research, told Business Standard. “A quarterly fuel adjustment translating to about six-eight per cent increase in rate annually should be politically feasible,” he said.