Stocks
Stock Market: A false dawn

Don’t get excited by the moves of FIIs and government

The opening of the markets on...

Premium Content
Monthly Digital Access

Subscribe

Already A Subscriber?
Login
Yearly Digital+Print Access

Subscribe

Moneylife Magazine Subscriber or MSSN member?
Login

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
Economy & Nation Exclusive
Why the power sector reforms could collapse

Only if the states and Discoms “walk the talk” with the mandatory conditions outlined in the financial restructuring scheme, would the chronic “payment security” risk for power sector in India be addressed

 
The proposed financial restructuring scheme announced by the government for the state electricity boards (SEBs), would translate to just another bailout, unless the state governments and SEBs fulfil the mandatory conditions, remind Nomura Financial Advisory and Securities (India) Pvt Ltd.
 
The brokerage, in a research note, said, “the detailed working mechanism of the financial revamp plan for SEBs confirms that state governments and lenders would assume the bulk of the burden, the Central government would provide support in the form of ‘incentives’ via a ‘transitional finance mechanism’ and compliance with mandatory conditions to avail this ‘scheme’ would ensure ‘fiscal discipline’ by Discoms in terms of retail tariff revisions and focus on aggregate technical and commercial (AT&C) loss reduction.” 
 
Earlier, following approval of the Cabinet Committee on Economic Affairs (CCEA) a fortnight back, the ministry of power (MoP) has notified the “Scheme for Financial Restructuring of State Distribution Companies (Discoms)” over the weekend.
 
Besides revamping the balance sheet of ailing Discoms, the financial restructuring scheme entails sustained “fiscal discipline” on the part of Discoms, including adherence to stipulations of the Appellate Tribunal’s (APTEL’s) landmark order in November 2011 on retail tariff revisions. 
 
“We believe it is a long-term positive for power utilities. Within our coverage universe, while private IPPs such as Lanco Infra, which have sizeable receivables from ailing Discoms, and JSW Energy, which is awaiting final tariff orders from the electricity regulator in Rajasthan, are near-term beneficiaries, as fuel security remains the overarching risk for private IPPs, Power Grid Corporation of India and NTPC remain our preferred picks. In our view, any move to restore the financial health of SEBs also augurs well for Coal India,” Nomura said.
However, the brokerage feels that loss-laden Discoms are more likely to adopt this scheme. It said, “In our view, besides the Discoms in seven focus states (for which this exercise was primarily undertaken), states with loss-laden Discoms are likely to utilize this ‘scheme’ as: 1) working capital refinancing is already contingent upon commitment to a ‘cash flow’ restoration roadmap and adherence to APTEL’s Order; 2) the central government would be sharing part of the financial burden, in this case; and 3) a ‘special arrangement’ to fund near-term operational losses and interest payment could be worked out.” 
 

 

User

Will the reforms get stalled in Parliament?

The UPA government is a minority in both Lok Sabha and Rajya Sabha. With some outside support and some parties abstaining, the FDI bills may get passed in the Lok Sabha, however, approval in the Rajya Sabha will be challenging

 
Unlike foreign direct investment (FDI) in multi-brand retail and civil aviation, the second round of reforms announced by the Indian government, would prove to be a real litmus test of the United Progressive Alliance (UPA).
 
“These (second round of) reforms need parliamentary approval, and therein lies the challenge as many parties are opposed to FDI in insurance and pension sectors, though the Companies bill should be able to sail through. The ruling government currently is a minority in both the Lower and Upper House, with a relatively stronger hold in the Lower House,” said Nomura Financial Advisory and Securities (India) Pvt Ltd, in a research note.
 
According to the brokerage, with some outside support and some parties abstaining, the FDI bills may get passed in the Lok Sabha, however, approval in the Rajya Sabha will be challenging. “As such, implementation risks exist and today’s FDI measures are the real litmus test of the government’'s ability to garner support when the parliament session commences next month,” it added.
 
Last week the UPA government announced a hike in FDI in the insurance sector to 49% from 26%, allowed FDI in pension sector with a ceiling of 26% and approved amendment in Companies Bill, 2011, Forward Contracts Regulation Act (Amendment) Bill or FCR(A) Bill and in the Competition Act, 2002.  
 
Among the main reforms announced, the hike in the insurance cap will infuse capital into the insurance industry and bring in expertise/innovation from foreign players. Pension reforms or Pension Fund Regulatory and Development Authority (PFRDA) Bill will help set up a statutory body for the pension sector. The new system can provide social security to the unorganized sector, reduce the government’s future liabilities by bringing more private participation and increase investment in equity markets, especially long-term investments such as in infrastructure. 
 
The Companies Bill will help create a simple and more up-to-date law to govern corporates in India and avoid corporate scams, ease setting up of new companies, make corporate social responsibility compulsory, among others items. The FCRA Bill will empower the commodity market regulator.
 

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)