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.

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