Monday, January 07, 2008

Indian Power Sector IPOs – 2008 and beyond

Year 2008 will be most likely a year of the power sector IPOs in India. The 11th plan period (2007-2012) has set an ambitious target of achieving 78,577 MW by the government of India.

The capacity addition target has been set with a perspective of adding 100,000 MW by 2012, which will take India's total installed capacity to 200,000 MW.

Unlike the last plan period, Indian private sector is going to play a major role in the 11th plan to meet the ambitious target set by the government. No wonder almost all power companies are contemplating the idea of initial public offerings to raise money for this capital intensive sector.

With economy tipping near the 10 percent growth rate and BSE SENSEX on record high, the timing is not bad at all.

If one take a quick look at the power sector companies that have already announced or planning with IPOs for 2008, he will be speechless.

From Reliance Power to Sterlite Energy to JSW Energy to JP Associates, the list is long and all these companies are going ahead with their plans for IPOs this year. The total capital these companies are planning to raise from the market is whopping Rs 30,000 crore (US$ 7.69 billion).

If all these plans fructify, this year's power IPO collections alone will match last year's total IPO mobilisations of Rs 34,000 crore (US$ 8.71 billion).

With economy growing at full throttle and power in short supply, this sector will be the next big thing to watch for in the coming years.

Surely I will bet some 20% to 25% of my investments in this sector in the medium to long term.

1 comments:

J.Balasubrahmanyam 10:35 AM  

OPEN ACCESS TO TRANSMISSION SYSTEM

As you mentioned, Private Sector will have large role in capacity addition. But there are many risks that they encounter, the foremost of them being evacuation of the generation.

Electricity Act 2003 mandates that the CTU shall provide non-discriminatory open access to its transmission system for use by any licensee or generating company on payment of the transmission charges.

At present the Power Grid Corporation of India has been designated by the concerned authorities (under the Act) as the Central Transmission Unit (CTU)

When Private Power Generators approach the CTU for providing them with Open Access to the transmission system for evacuation of power from their proposed power plants, the former is asking the generator to identify the Licensee and the point of drawal.

For the Private Generator obtaining commitment of open access of transmission facility is a pre-requisite for Financial Closure. This is a requirement that forms the corner stone and forms an activity the kick starts the project schedule. Identification of power purchasers as also the points of drawal of power cannot be finalised at that stage for the reasons given below:

The Government of India had issued on 6th Jan., 2006 Tariff Policy that states "All future requirement of power should be procured competitively by distribution licensees"

This Order "forbids" the distribution licensees from even considering entertaining any proposal from private generators about extending a commitment to purchase power from such generators.

This has become a "Catch 22" type situation.

The Authorities who are keen to see that Private Generators to come forward to supplement the efforts of the Government agencies to add to the installed generating capacity during the Eleventh Plan (2007-2012) should look into this anomaly and correct the same.

PGCIL is a commercial entity and is concerned on the financial viability of their investments and would not be able to take risks while investing.

It should be the responsibility of the Planning Commission of India to provide for necessary and adequate funds as part of the Plan funding to cater to the augmentation of transmission elements to meet the Power Evacuation requirements of the Private Generators. The entire funding can be routed through Central Electricity Authority and the implementation agency could be PGCIL.

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