FY13 to be a year of consolidation for power sector: IIFL

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FY13 to be a year of consolidation for power sector: IIFL

The power sector has been suffering the most over the last couple of days. In an interview to CNBC-TV18, Harshvardhan Dole of IIFL says, FY13 will be a year of consolidation for the sector.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Jindal Steel BSE | NSE 30/05/12 Are Mutual Funds betting on Jindal Steel? Other Stocks in this news Lanco Infratech | KSK Energy Ventures | Adani Power | Tata Power Company | NTPC | NHPC | JSW Energy | Power Grid Corporation of India |

The power sector has been suffering the most over the last couple of days. In an interview to CNBC-TV18, Harshvardhan Dole of IIFL says, FY13 will be a year of consolidation for the sector.

According to him, unpredictability of fuel cycle has impacted the power sector. He feels the new tariff policy, which is being talked about, will impact JSPL , Lanco and KSK the most. However, he sees low probability of tariff policy being tweaked.

Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying video.

Q: What is your preliminary analysis of what is being talked about in terms of a new tariff policy? How detrimental you think that might be?

A: The new policy, which is being talked about, the idea or the motivation behind this thought process is to make power affordable to the end level consumers. If you breakdown the power costs, about 70% of the costs is fuel and the other fixed costs including the profit accounts for roughly about 30%.

If power has to be made affordable, one has to get the fuel cost right. What has gone wrong in the power sector over the last few years is essentially the fuel cycle has been completely unpredictable. That has hit most of the private as well as public sector developers. The thought process is to make fuel cost affordable. Therefore, the idea is to cap the power prices to make it more affordable to the end level consumers

Q: According to you, what could the cap on the merchant tariffs be, if and when it comes about?

A: It is a philosophical question whether the government has any role to play in capping the power tariffs. The way we see it is the role of government should be to facilitate the infrastructure development and let the market forces -demand and supply-decide what the affordable price is.

The focus should be to make more availability of fuel; be it imported coal, be it domestic gas, and be it domestic coal supplies which will ensure that power availability will increase. Let SEBs and the end level consumers decide what the optimal price of power purchase is, and what price can be passed on to the end level consumers.

Q: We saw a lot of stocks like JSPL, Adani Power etc slip in trade yesterday. In the universe that you track, which stocks or which companies could be highly affected or the most affected if such a tariff change comes about?

A: There are two things. One, it is unclear whether such a proposal will be made to effect even for the operational assets. If that is true then players such as JSPL, Lanco, to an extent some players such as KSK Energy Ventures, will certainly get affected. These are the players that either they have their own captive coal mines up and running or they have linkage coal and they are selling power at a price of an imported coal based power project. These are the power projects which certainly will get affected.

However, if at all the policy is implemented on a prospective basis then there will be substantial impact on upcoming merchant power projects. That are estimated to be in the region of about 30,000-35,000 MW. A host of other players such as Adani  and JSW Energy will get affected.

But the players which will remain relatively insulated are players such as Tata Power , NTPC and NHPC . They have cost plus or assured ROE kind of model.