Power Stocks Mount On CERC Order

The Power stocks saw a robust demand again after CERC directed the power utilities from 5 states to pay Tata Power compensatory tariffs on the agreed tariffs as per the contractual terms. Earlier in a similar order dated Aprl 5, 2013, CERC had asked the Haryana and Gujarat distribution utilities to pay compensatory tariffs to Adani Power. The news has positive bearings on the power stocks and this has resulted in a positive sentiment among investors regarding the stock.

The electricity regulator has now asked for forming of a committee which will include stakeholders as well as an independent banker and a reputed financial analyst to decide the quantum of the compensatory tariff. On the other hand, it has also refused to term the change in the Indonesian regulations as a force majeure event.

CERC member S Jayaraman has once again raised grave concerns over the order passed. Earlier too, in case of CERC's order related to Adani Power, he had raised similar concerns. He has also said that the CERC's order has given a chance to Tata Power to correct its mistakes committed at the time of bidding. He has said that Tata Power has equity stake in Indonesian coal mines and hence even if the regulation dented the profits of the power business, the company made profits in the coal business. The CERC, in its order, has asked the committee to deduct the net profit earned by Tata Power in coal business.

Overall, the power sector has cheered this decision and we believe that the sector may see a good sentiment remaining intact until April 30, 2013, when the committee will declare the quantum of the hike. Expectations have also increased regarding CERC passing a similar order for Reliance Power's Krishnapattnam Ultra Mega Power Project.