Parekh Panel Submits Report On Power Tariff Hikes

On August 19, a high level panel headed by Deepak Parekh suggested hiking tariffs in the imported coal projects of Tata Power and Adani Power. This caps off a series of events in this regard.

In April this year, the apex body for power, the Central Electricity Regulatory Commission (CERC) had passed an interim order to hike tariff hikes in Adani Power and Tata Power owing to the rise in the cost of imported coal in Indonesia. The CERC order had given a breather to both companies by allowing them a temporarily hike in tariffs to compensate for the higher fuel cost. It had, however, declined to term the change in the regulation as a ‘force majeure’ event. One of the CERC members, however, was in complete disagreement about hiking the tariffs. As per the original order, an independent panel was to decide the quantum of the tariff hike.

Tata’s 4000 MW Mundra UMPP has been completely commissioned, but it has seen nothing but losses due to the rise in input costs. The company is now seeking a tariff hike of around Rs 0.60 per unit to contain the cost of imported coal. Currently, its long-term power purchase agreements are tied up at the rate of Rs 2.26 per unit. After the commissioning of the project, the company has reported losses on a consolidated basis for the last two years.

Adani Power also has a 4620 MW imported coal-based project in Mundra. This huge project is fully operational, but the company has been reporting losses for the last seven quarters in row – most recently Rs 2295 crore in FY13 and Rs 287 crore in FY12. It should be noted that Adani Power saw a loss at the operating level in FY13, indicating that it could not generate enough cash flows to meet its operational needs. It has been seeking a hike of around Rs 0.50 for the electricity generated from this project.

Following the Parekh panel’s recommendation, the quantum of the hike would be dependent on international coal prices and the profits generated by the investments of these companies in the coal sector in Indonesia. We may have to wait for some more information on this regard. A hike of over Rs 0.50 is something the market would be looking for. Anything less would further lead to a crack in the stocks.