Indian Government unleashed a number of half baked reforms which were pending for a long time but that has not helped the industry all that much. Though the stock markets have gone up, the companies in the reform sectors have not benefited much as the reforms have failed to address the core structural issues.
India’s crucial Power Industry has been in a mess for a long time now with muddled regulations in coal, gas and power adding up to the electricity companies woes. While the Government has come up with a plan to reduce the debt of the bankrupt state electricity distributors, it has failed to adequately address the issue of coal supply to the thermal power plants. Coal India which is India’s monopoly miners continues to be one of the most inefficient and corrupt organizations. The Government has failed to break this monopoly or even address the issues of massive power theft in power transmission.
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Coal India Ltd’s move to seek consent from the consumers for pooling prices of imported and domestic coal is facing stiff opposition from coal-bearing States.
Price pooling proposal came on the back of a Presidential Order to CIL to enter FSAs with new power plants with guaranteed supply (trigger) of 80 per cent of the requirement as against an estimated domestic availability of 65 per cent of the requirement.
The proposal should help the new coastal power plants, mostly in private sector, to get imported coal at a subsidized price. Preliminary estimates suggest that pooling should increase domestic coal prices by Rs 100 a tonne impacting generation cost by approximately 10 paise on an average.
The feasibility of the proposal was questioned by CIL board in its earlier meeting to finalize the draft FSAs earmarking aggregate 65 per cent domestic coal content.
Currently the power companies are confused over the fuel supply agreements (FSA) with Coal India which will supply them with 85% of their coal requirements. This is because the coal rich states do not want to bear the extra price of imported coal which is planned to be pooled with cheaper domestic coal. With no clarity on price pooling, large number of thermal power plants are left in the lurch. Note some massive thermal power plants are either frozen or running at losses due to the sharp rise in imported coal prices. With the current power plants lying underutilized, orders for new power equipment has been delayed indefinitely. This has led to a sharp decline in the orders and stock prices of capital equipment companies and engineering companies like BHEL.
State-run BHEL is facing an “alarming situation” in the absence of new orders from the much-delayed power projects, despite an existing order book of Rs 1.30 lakh crore, according to a government official.
The company conveyed its concerns recently to the Heavy Industry Ministry, the official said.
The order flow has been hurt in recent times in the wake of multiple power sector problems. From 2011-12 onwards, issues of coal linkages, finances and delays in environment clearances are impacting the power sector.
The official said no new orders are coming up while existing projects —— that have been finalised —— are going slow or put on hold in the wake of financial constraints. In the wake of these problems, BHEL is finding it difficult to proceed with many of the projects, he added.
According to the official, BHEL informed the Ministry that “It is an alarming situation not only for BHEL because the company has expanded the capacity, taken number of people, but also for downstream industries of BHEL”.