Covered in a survey by the IndRa rating agency, The coal that has been imported with high monetary values will cause an impingement on the value chain of power sector as the greater rates will get “mass and profitability pressures” on the power companies that will not be exiting the fuel price to consumers because of the “political intervention”.
Between April¬-October 2016, The 60% rise in imported coal prices is likely to negatively impact the power sector value chain,” said by the report.
As the distribution company (discoms) is not completely able to exceed the increase in fuel cost to the consumers or there is a delay in increasing the prices. This is only due to political interventions.
The discoms, independent power producers (IPPs) who can’t pass the fuel cost, merchant IPPs, and ports will suffer the consequences. According to the report, as they are dependent on the volumes, these will face profitability and volume pressures.
In October 2016, The increase in imported coal prices was more pronounced, wherein September 2016, prices rose by 25% to around $85/t (tonne) from $68/t, said by the report. Also revealed by the report that the power buying cost is an uncontrollable expenditure for the discounts only way is that the regulatory commissions pass these costs by power purchase and fuel cost adjustment (PPFCA). The state regulatory commissions generally don’t allow such PPFCA adjustments on the ground of the real and timed situation; it is also seen many times in the past days. So the increase in costs without any increase in revenues has to ultimately bear by the discoms. “Ind¬Ra expects merchant IPPs which have sold power through the merchant route to be impacted significantly since the tolls on the exchanges/bilateral trades have not gone upward at the same rate… As the wage increase in the variable cost of generation (25%) in October 2016, on account of the imported coal price increases,” it said.
“Thus leading to a substantial contraction in their gross margins, which have descended to zero in October 2016. In the current price scenario, the viability of merchant IPPs on imported coal is doubtful, said by the report.