Kuljit Singh, partner, infrastructure, Ernst & Young, says the picture
will get even brighter. “This is a good time to invest in operational units as well as those under construction, as investors can get them cheap.”

Another important step is that the cost of using imported coal will gradually be passed on to the consumer, which will settle the wrangling over how the burden should be shared. “Nineteen distribution companies have increased tariffs. The Uttar Pradesh Electricity Regulatory Commission, for example, has allowed [the Uttar Pradesh Power Corporation] to increase tariff by 40%,” says Chatterjee. “The cost hasn’t been passed on to industry, but to agriculture and household consumers. Transmission lines are also being improved to reduce losses.”

Vinayak Chatterjee, co-founder and chairman, Feedback Infra, an infrastructure consultancy, says the scarcity of coal is exaggerated, because states like West Bengal have an excess. According to the FSA, Coal India has agreed to supply 65% of the coal requirement and imported coal will fulfil another 15%. However, Kohli says Coal India has to ramp up output to 584 million tonnes by FY17 to ensure full supply under the FSA, which implies a CAGR (in output) of 7% from FY15 to FY17. This poses a challenge because the company hasn’t achieved such a growth in the past 10 years.

Kohli picks NTPC and Tata Power on account of capacity growth and comparatively lower risk from coal shortages because they have captive mines.

“The proposed changes are a major step towards solving the ailments of the sector. It will improve coal availability and, thus, increase power output,” says Daljeet Singh Kohli, head of research at stockbroking firm IndiaNivesh Securities.“There is opportunity in the sector and the risk is limited because of cheap valuations.”

Recently, the Ministry of Coal agreed to sign a fuel supply agreement (FSA) for 11 power units. These units, with a total investment of Rs 53,000 crore, have been idle for the past four years due to the lack of coal supply. The FSA will help them generate 10,400 MW annually. Jaypee Group, GMR Infrastructure, Adani Group, Lanco, and DB Power are among the promoters of these units.

THERMAL POWER UNITS have, for the longest time, faced problems such as low tariffs, non-payment of dues by electricity boards and the high cost of imported coal. But in the past few months, the central government has announced steps that could change this state of affairs. Cue: This is a good time to pick up shares of thermal power companies at low valuations.

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