Analysis of the Power (Electricity) Sector

7/29/2019 Analysis of the Power (Electricity) Sector

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A PROJECT ON

ANALYSIS OF THE POWER

(ELECTRICITY) SECTOR

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

OF THE MASTER OF MANAGEMENT STUDIES (M.M.S.)DEGREE COURSE 2003-2005

Submitted to

PROJECT GUIDE

Prof. (Ms) Ranjani

By:

MR. MEHERWAN KOTWAL

M.M.S. FINANCE

ROLL NO. 25

K.J. SOMAIYA INSTITUTE OF MANAGEMENT STUDIES

AND RESEARCH

VIDYAVIHAR MUMBAI


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UNIVERSITY OF MUMBAI

CERTIFICATE

This is to certify that the project titled Analysis of the Power (Electricity

Sector been submitted by Mr. Meherwan Kotwal, Roll No. 25, towards

partial fulfillment of the requirements of the Master of Management

(M.M.S.) degree course 2003-2005, has been carried out by her under

the guidance of Prof. Ranjani, at the K.J. Somaiya Institute of

Management Studies and Research, Mumbai 400 077, affiliated to the

University of Mumbai.

The matter presented in this report has not been submitted for any other purpose in this institute.

Prof. Ranjani,

Project Guide,

K.J. Somaiya Institute of Management Studies and Research, Mumbai.

15th of March 2005


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ACKNOWLEDGEMENTS

I would sincerely like to thank my project guide, Prof. Ranjani for her

valuable support, guidance and encouragement given to me during the

course of this project.

I am grateful to the library staff of the institute for their timely co-operation.

I also thank the administrative staff members for providing help at various

stages.

I extend my heartfelt gratitude to my colleagues and other good wishers who

contributed towards the successful completion of my project work

Dated: March 15th 2005 Meherwan Kotwal


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EXECUTIVE SUMMARY

The Power Sector in India presently experiences a deficit in the supply of electricity.

Even the per capital consumption in India is much lower than the rest of the world.

The Power Sector is looking ahead to exciting times after being in the stronghold of the

Public Sector since independence.

The Report adopts a top-down approach while dealing with the power sector. It starts off

with the international power consumption patterns, then narrows it down to the domestic

power scenario and finally focuses on individual companies in the domestic electricity

generation, transmission and distribution arena.

The Report also pays emphasis on the newly introduced Electricity Act in the year 2003

and examines its positive implications on the entire industry.

Issues critical and peculiar to the Indian Power Scenario are also looked into and

explained.

The report also tries to envisage the future of the power sector and specifies the reasons

why the sector as such would look attractive for investments.

Finally a closer inspection of 3 of the leading power companies in the country is carried

out and their financial performance is examined.

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INDEX

The International Energy Consumption Patterns 6

The International Coal Scenario 8The International Hydro Power Scenario 10

International Nuclear Energy Scenario 11

Indias Commercial Energy Consumption 12Indias Electricity Scenario 13

Power Generation

Indias Current Situation with respect to Coal 15Indias Thermal Energy Scenario 17

Indias Hydel and Renewable Energy Scenario 19Nuclear Power in India 21

Power Transmission 22

Power Trading 24

Power Distribution 26

Electricity Act 2003 27

Important Issues Relating to the Power Sector

Pricing 31

Tri-partite Agreement 34

Transmission and Distribution Losses 35Open Access 36

Captive Consumption 37

The Future of the Power Sector 38

Why does the Power Sector in India look attractive 40

Company Study

NTPC 43

Tata Power 48Reliance Energy 52

Bibliography 56

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The International Energy Consumption Patterns

The worlds total Primary Energy Consumption has shown a compounded average growth rate

(CAGR) of 2.5% over the last 35 years. The forms of energy include coal, oil, gas, nuclear

power, hydro and other renewable resources. If we also take into account the increase in

population over the abovementioned time period then we see that there has been a per capita

CAGR of around 0.7%.

The worlds current energy mix is given below:

The International Energy Mix

Coal

24%

Oil

39%

Gas

22%

Nuclear

7%

Hydro

7%

Renewables

1%

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It is interesting to note that the fossil fuels i.e. hydrocarbons and coal account for 85% of the

total energy consumed.

The fastest growth rate in energy consumption has been seen in the Middle East followed by the

Asia-Pacific region (excluding Japan) over the last 35 years. Eastern Europe and Russia have

seen a negative growth rate of around 3.5% over the last 15 years due to political turmoil and

economic changes.

Going into the future we shall see coal maintaining its current share of the energy mix and once

the oil and gas stocks start depleting its share could go up to 33%. This is because by the coal

gasification and liquefaction technologies would be well developed. Given the limited fossil fuel

resources it is expected that the share of renewable sources of energy will go upto 23% as a

results of new discoveries and development of alternative processes for generating energy.

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THE INTERNATIONAL COAL SCENARIO

Coal has been one of the oldest inputs for energy production as well as for the manufacture of

iron and steel. With the oil shocks of the 1970s coal once again started gaining its lost glory and

retained its position as an important source of energy supply especially for power generation.

At the turn of the century coal accounts for about 24% of the worlds Commercial Energy

consumption. The coal consumption in the year 2004 was around 5000 tons. The share of the

Asia-Pacific region (including Japan) was around 44% of the international consumption of coal.

China is the worlds largest consumer of coal with a consumption of over 1100 million tons

which accounts for nearly 22% of the total international consumption. In the 2nd place came the

United States of America which consumed around 1050 million tons of coal or roughly 21%.

The third largest consumer of coal in the world is India that accounts for a consumption of

roughly 360 million tones representing 7% of in international consumption.

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The consumption of coal has gone down drastically in the European regions because natural gas

has substituted domestic coal in the energy mix of these countries.

Over the next two decades, coals share of global primary energy consumption is expected to

decline to about 22% by 2020 after which there shall be a renewed emphasis and greater

consumption of coal.

Following are some of the countries that account for a majority of the coal reserves in the world:

rank country

anthracite &

bitumous

sub-bitumous &

lignite total

percent of

total

1. USA 115,891 134,103 249,994 25.39%

2. RussianFederation

49,088 107,922 157,010 15.95%

3. China 62,200 52,300 114,500 11.63%

4. India 82,396 2,000 84,396 8.57%

5. Australia 42,550 39,540 82,090 8.34%

At the end of the year 2003 the total international coal reserves stood at around 985 billion tons.

The reserves to production ratio of coal is around 216 years making it one of the most reliable

and abundant energy sources in the world.

For the Asia-Pacific region especially for India and China large increase in coal consumption is

forecasted. This is because these economies not only have large exploitable coal reserves but are

also on the fast track and are showing phenomenal industrial and GDP growth. These economies

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are expected to keep growing at the same pace for atleast a few more years that would put great

pressure on the energy resources and thus would culminate into an increased usage of coal to

supply the industries with more and more power. Japan would continue to import coal and more

that 50% of its coal consumed would be utilized by the countrys steel industry.

THE INTERNATIONAL HYDROPOWER SCENARIO

The worlds theoretical hydropower potential is estimated to be around 40000 Tera Watt hours,

the technical potential at around 14000 Tera Watt hours and the economic potential at around

8000 Tera Watt hours. As against this only one third of the economic potential has yet been

developed. The US and Western Europe has estimated to have already developed 76% and 65%

of their potential. However in regions like Africa and Asia less than 20% of the potential is in

use today.

The worlds installed hydro capacity stands at around 700 GW. The largest producers of hydro-

electricity in the world are Canada, US, Brazil, China and Russia

Hydropower has cerain advantages, the principle among them being the ability to start and stop

quickly and instantaneous load acceptance and rejection. The other benefits offered by

hydropower plants are the long life of the plant, the renewable nature of the of the energy source,

very low operating and maintenance costs and absence of inflationary pressures experienced by

fossil fuels.

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Worldwide about 125 GW of hydro capacity is under construction bulk of which is in the

developing countries.

INTERNATIONAL NUCLEAR ENERGY SCENARARIO

Nuclear Energy has seen a phenomenal growth from just 12 GW capacity in the year 1960 to

around 349 GW at the turn of this century accounting for around 12% of the worldwide capacity

and around 16% of the generation.

Following table summarizes the international nuclear energy situation:

Particulars

Number of generating countries 31

Number of nuclear units in operation 434

Nuclear Capacity 349 GW

Nuclear Energy Generation 2407 TWh

Nuclear Energy Share in Generation 16%

Uranium Requirements 60000 tons

Nuclear energy has help economies engaged in its production to achieve Energy Security and

helped them reduce their CO2 emissions since it is a carbon free energy resource.

However there are concerns about the safety of using such a resource for energy production

because of a few disasters that have occurred while nuclear power has been generated.

The following countries are the largest generators of nuclear power in the world today.

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Name of Country Billion KWh

USA 769

France 401

Japan 322

Germany 162

Russia 125

INDIAS COMMERCIAL ENERGY CONSUMPTION

The Following table given below summarizes the current consumption patterns within our

country:

315 Million Tons of Oil Equivalent

OIL

COAL

NUCLEAR

NATURAL GAS

HYDRO / RENEWABLES

Thus we see that India depends for around 93% of its energy consumption on hydrocarbons viz.

oil, coal and natural gas. With the discovery of gas its proportion in the pie shall slowly move up.

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But India has got a vast pool of unutilized renewable sources of energy that needs to be exploited

further for better energy security and sustainable development.

INDIAS ELECTRICITY SCENARIO

There had been a complete shift in the ownership of utility companies since independence. At the

time of independence private sector utilities and licenses provided over 80% of the total

electricity supply in India. However after independence there was a gradual reversal of

ownership. State Electricity Boards took over most private licensees when their licenses expirted

and after 1956 no new licneses were granted. In the same year the government decided that the

generation and transmission of electricity would be reserved exclusively for the public sector.

The total generation capacity available to the grid was 112,058 MW as on 31st March 2004

consisting of 31,370 MW hydro, 77,968 MW thermal, 2,720 MW nuclear and 1,617 MW wind.

Of the total capacity the SEBs own 57% of the total installed capacity, while the private and

the central sector own 8% and 35% respectively.

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The following chart illustrates the current breakup of electricity generation in the country.

The electricity consumption has grown at an average rate of 7.0% (CAGR) during the period

1970-2002. However the growth has been uneven among the various consumer categories.

The share of domestic and agricultural sectors in the total sales increased from

19% in 1970-71 to nearly 50% in 2001-02 while that of industry declined from over 68% to

about 29% during the corresponding period.

The per capita electricity consumption increased from 178 kWh in 1985-86 to 355 kWh in 1999-

2000 i.e. an increase of about 5.1% per annum. The regional share of power consumption has

also changed marginally, the western region leads in power consumption with a 35% share in

1999-2000 from 29% in 1980-81, followed by the Northern region .

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HYDRO

27%

THERMAL

70%

WIND

1%

NUCLEAR

2%

HYDRO

THERMAL

WIND

NUCLEAR


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The fastest growth in power consumption has taken place in agriculture. This is mainly because

of the increased use of irrigation pump sets. Also the government has been laying stress on rural

electrification and as a result of this there has been a substantial increase in demand for

electricity for agriculture.

The Electricity Sector in India can be distinctively divided on the basis of the stages of the

electricity cycle into the following categories:

A] GENERATION

B] TRANSMISSION

C] DISTRIBUTION

Let us take a look at GENERATION first.

INDIAS CURRENT SITUATION WITH RESPECT TO COAL

Commercial coal mining in India has a history that spans beyond 2 centuries. At the beginning of

the first 5-year Plan the coal production was 33 million tons and as time progressed this limited

production proved to be inadequate for meeting the needs of the growing demand. The

government was of the view that since this industry was highly capital intensive adequate finance

was not coming from the private sector. Besides the mining practices adopted by the mine

owners and the working conditions that were offered to the labourers were highly sub-optimal.

On account of this the government decided to nationalize the private coalmines. The

nationalization was done in two phases, the first with the coking coal mines in 1971-72 and then

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with the non-coking coal mines in the year 1973. In 1975 the nationalized coal industry was

brought under the aegis of Coal India Limited. The government had passed an order not allowing

private players to mine coal unless if it were for captive plants for iron and steel industry.

Coal is the most abundant energy resource available in India and hence has found maximum use

in whichever industry in which it can be used as an alternative.

Following are some macro facts about coal in India:

Reserves -- 220 billion tons

Proven Reserves -- 80 billion tons

Current Consumption -- 335 million tons/year

In India more than 2/3rds of coal consumption is taken up by the Power (Electricity) Sector and a

majority of the remaining part gets taken up by sectors such as steel and cement.

The coal reserves are mainly concentrated in the eastern parts of the country. The following are

the states accounting for the largest coal reserves in the nation.

State Total Reserves Percentage of Total

Jharkhand 69175 million tons 31%

Orissa 51571 million tons 23%

Madhya Pradesh 49543 million tons 22%West Bengal 25919 million tons 12%

Out of the 220 billion tons of reserves 190 billion tons are of the non-coking type.

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The lignite reserves are currently place at around 35 million tons most of which occur in Tamil

Nadu. Other states where lignite reserves are found are Rajasthan, Gujarat, Kerela, Jammu and

Kahmir and Union Territory of Pondicherry.

India today is the 3rd largest producer of coal in the world just behind USA and China.

Till the year 1978 India was self-sufficient with respect to coal. But from the year 1979 the

country has started importing coal and today imports about 22 million tones. The imports have

increased because as per the current import policy coal can be freely imported under Open

License. Coking coal is imported by domestic companies such as SAIL to improve quality of the

overall blend due to technological reasons.

Power Sector today is the single largest user of coal. Its share in coal consumption has gone up

from 24% at the beginning of the 1970s to over 70% at the present moment. The share of the

power sector in this regard is expected to grow further in the times to come.

The working group on Coal and Lignite for the formulation of the 10 th 5-Year plan has assessed

the countrys demand in 2006-07 will be around 453 million tones. As against this the production

will be around 405 million tones and the balance shall need to be imported.

INDIAS THERMAL ENERGY SCENARIO

India gets majority of its electricity requirements from this source due to the abundance of coal

as a natural resource in the country. Though the thermal energy sector accounts for 36% of the

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capacity utilization it accounts for 39% of the power generated. This is on account of the higher

operating efficiencies that it enjoys.

The following chart depicts the shares of the current major players in the thermal electricity

generation field:

Capacity(MW) % Share

Electricity Generation(GwH) % Share

Central 27629 36 182887 39.2

State 40849 53.3 237432 50.9

Private 8191 10.7 46229 9.9

Total 28925.2 100 466618 100

Amongst the Central Utilities NTPC has got the largest share accounting for a production of

close to 85% of the centers share of thermal power generation. Besides NTPC, there are other

central power generating authorities such as Neyveli Lignite, NEEPCO that account for the

balance production of the center.

Amongst the private Sector the largest thermal power generating company is Tata Power which

accounts for around 9300 GWh of electricity production. It is followed by Calcutta Electricity

Supply Company (6685 GWh) and Reliance Energy (6555 GWh).

The installed capacities of these 3 largest players are as follows:

Tata Power -- 1411 MW

CESC -- 1065 MW

Reliance Energy -- 894 MW

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INDIAS HYDRO AND RENEWABLES ENERGY SCENARIO

India seems to be ignoring the potential energy that can be generated via renewable energy

sources even though it has a separate ministry dealing with new and renewable energy sources.

The following table will illustrate the current situation:

Potential Achievement

Biogas Plants 120 lakh 32.75 lakh

Wind 45000 MW 1507 MW

Solar Energy 20 MW / sq. km 82 MWWaste to Energy 1700 MW 17.1 MW

Solar Water Heating 1400 lakh sq. m 600000 lakh sq. m

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Indias current capacity from renewables (other than Hydro) stands at about 3400 MW or over

3% of the energy generated in the country. For the year 2012 a target of 10000 MW of power

from renewables has been envision by the countrys policy planners.

As far as hydro-electricity generation goes the share of the total pie has gone down over the last

25 years. A lot of unexplored potential lies in generating power in this manner. The total

potential is summarized as under.

Basins / Rivers Potential Load at 60% Load Factor (MW)

Indus 19988Ganga 10715

Central Indian Rivers 2740

West-flowing rivers 6149

East-flowing rivers 9532

Bhramaputra 34920

The total potential at 60% plant load factor is estimated to be around 84,044 MW. Thus this will

require an installed capacity of 148,701 MW. The cost of developing this untapped potential in

the country has been estimated to be about Rs 5,00,000 crores at current price levels.

The Ministry of Power has taken several measures like higher budgetary allocation, improving

tariff dispensation and so on as the actual installed capacity is only about 15000 MW in the

country. Another 6000 MW of hydel power is under development.

The following are the market shares of the respective players vis--vis hydro-electricity:

Capacity

(MW) % Share

Electricity Generation

(GwH) % Share

Central 7754 26.8 26114 35.5

State 20294 70.2 44678 60.5

Private 877.2 3 2974 4

Total 28925.2 100 73796 100

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NHPC is the largest hydro power generating corporation in the country. With

a total installed based of 2175 MW, the corporation has eight operational projects located in

the northern, eastern and northeastern regions of the country. The company aims to add

4357 MW by 2007 and 14,432 MW by the end of the eleventh plan period.

NUCLEAR POWER IN INDIA

India at present has 14 nuclear power plants with a total installed capacity of 2720 MW. Nuclear

Power Corporation of India, a wholly owned enterprise of the Government of India operates

these plants. India has sufficient Uranium reserves to support a program of 10000MW power

generation based on Pressurised Heavy Water Reactors.

The Department of Atomic Energy plans to ramp up the installed capacity of nuclear power

within the country to 20000MW by the year 2020. For this purpose energy would have to be

generated using plutonium first. In the next step Uranium 233 would have to be extracted from

Thorium to achieve the energy production targets. India has vast reserves of Thorium and these

should come in handy to the Department of Atomic Energy.

The following table below summarizes Indias Current Nuclear Power Generating Capacity

Plant No. of Plants Total Capacity

Tarapur 2 320

Rawatbhata 4 740

Kalpakkam 2 340

Narora 2 440

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Karkrapara 2 440

Kaiga 2 440

TOTAL 14 2720

New capacity in nuclear power is also coming up as under:

Location No. of Plants Total Capacity

Tarapur 2 1080

Kaiga 2 440

Rajasthan 2 440

Kundankulam 2 2000

TOTAL 8 3960

POWER TRANSMISSION

The Regional Power Grids in North, West, South, East and North-East have been established for

optimum utilization of the unevenly distributed resources in the country by facilitating inter-

regional and intra-regional power exchanges.

Power Grid Corporation of India limited (PGCIL) was incorporated on October 23, 1989 as a

public limited company, wholly owned by the Government of India. PGCIL started functioning

on management basis with effect from August, 1991 and it took over transmission assets from

NTPC, NHPC, NEEPCO and other Central/Joint Sector Organisations during 1992-93 in a

phased manner. In addition to this, it also took over the operation of existing Regional Load

Despatch Centres from CEA in a phased manner, which are now being upgraded with State of-

the-art Unified Load Despatch and Communication (ULDC) schemes. According to its mandate,

the Corporation, apart from providing transmission system for evacuation of central sector

power, is also responsible for Establishment and Operation of Regional and National Power

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Grids to facilitate transfer of power within and across the Regions with Reliability, Security and

Economy on sound commercial principles. Currently, it owns majority of inter state transmission

assets.

Private investment has been allowed in power transmission either through 100% equity or

joint venture with PGCIL. In case of latter, the PGCIL will hold only 26% stake and the rest

would be held by private party.

Based on envisaged generation capacity addition program, it is expected that Eastern and North-

Eastern regions would be a major source of additional power over the next decade and North,

West and Sourth regions would be the major recipients of this power. To cope up transmission

capacity is expected to reach 30000 MW by 2012.

Name of Link Capacity

HVDC LINKS

Vidyanchal 500

Chandrapur 1000

Gazukawa 500

AC LINKS

Balimela-Seleru 200

Kolhapur-Belgaum 300Seleru-Burgur 100

Karmnasa-Sahupur 200

Biharsharrif-Sarnath 500

Bipora-Sulakoti 100

Auraiya-Malanpur 200

Bongaigaon-Malda 800

Kobra-Buddhipadar 450

TOTAL 4850

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POWER TRADING

Power trading inherently means a transaction where the price of power is negotiable and options

exist about whom to trade with and for what quantum.In India, power trading is in an evolving

stage and the volumes of exchange are not huge. All ultimate consumers of electricity are largely

served by their respective State Electricity Boards or their successor entities, Power

Departments, private licencees etc. and their relationship is primarily that of captive customers

versus monopoly suppliers. In India, the generators of electricity like Central Generating Stations

(CGSs), Independent Power Producers (IPPs) and State Electricity Boards (SEBs) have all their

capacities tied up. Each SEB has an allocated share in central sector/ jointly owned projects and

is expected to draw its share without much say about the price. In other words, the suppliers of

electricity have little choice about whom to sell the power and the buyers have no choice about

whom to purchase their power from.

India being a predominantly agrarian economy, power demand is seasonal, weather sensitive and

there exists substantial difference in demand of power during different hours of the day with

variations during peak hours and off peak hours. Further, the geographical spread of India is very

large and different parts of the country face different types of climate and different types of

loads.

Power demand during the rainy seasons is low in the States of Karnataka and Andhra Pradesh

and high in Delhi and Punjab. Whereas many of the States face high demand during evening

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peak hours, cities like Mumbai face high demand during office hours. The Eastern Region has a

significant surplus round the clock, and even normally power deficit states with very low

agricultural loads like Delhi have surpluses at night. This situation indicates enough

opportunities for trading of power. This would improve utilization of existing capacities and

reduce the average cost of power to power utilities and consumers.

In view of high fixed charges, average tariff becomes sensitive to PLF. Trading of power from

surplus State Utilities to deficit ones, through marginal investmentI in removing grid constraints,

could help in deferring or reducing investment for additional generation capacity, in increasing

PLF and reducing average cost of energy. Over and above this, the Scheduled exchange of power

will increase and un-scheduled exchange will reduce bringing in grid discipline, a familiar

problem.

PTC India Ltd. (PTC, formerly power trading corporation), is the leading provider of Power

Trading services, and has been trading power on a sustained basis since FY 2002 through

purchase from surplus utilities and sales to deficit ones at an economical price, providing best

value to both the buyers and sellers and ensuring that the resources are utilized optimally.

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POWER DISTRIBUTION

The Central Government has got as negligible share in the distribution of power throughout the

country. The bulk of the power generation is carried out by the State Governments via their state

electricity boards within their respective states. The private sector also operates in a limited

capacity as distributors of electricity. The players procure energy from their own generating

plants, the Central Government plants and the independent producing plants and then supply the

electricity to the end consumer.

Distribution reforms have been identified as the key area of reforms in the power sector. The

reforms aim at boosting private sector participation in the distribution of electricity and

restructuring of the State Electricity Boards.

Under the ongoing reforms programme, distribution has been privatized in Orissa and Delhi.

While in Orissa, the power distribution is divided into four zones of which three are owned by

Reliance Group Companies. The other zone was privatised in favour of AES Group, . The Delhi

state was privatised by distributing city in three zones with two of the zones going in favour of

Reliance Group and the remaining in favour of Tata group.

The following are a few private companies that are engaged in distribution:

Name of Company Location

CESC Kolkatta

Ahmedabad Electricity Gujarat

Tata Power MumbaiReliance Energy Mumbai

Surat Electriciy Surat

NESCO Orissa

WESCO Orissa

SOUTHCO Orissa

CESCO Orissa

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BSES Rajdhani New Delhi

BSES Yamuna New Delhi

NOIDA Power Company Uttar Pradesh

ELECTRICITY ACT 2003

Electricity Act 2003 was need to bridge the discrepancy between the future needs and actual

capacity in the Indian electricity sector. Only 55% of households in India have access to

electricity, and many of these do not get uninterrupted reliable supply. Moreover, tariffs for the

electricity provided are among the highest in the world. Just over half of the capacity additions

planned during the 8th and 9th plans (1992-2002) was actually added. Ambitions for future

development, however, have not faltered. The Act aims to fulfill the governments plan to

provide electricity for all villages (about 80,000 more than currently covered) by 2007 and all

households by 2012. As discussed in the introduction the Ministry of Power estimates that over

100,000 MW of additional capacity will be required to meet these goals. The Government of

India also plans to augment inter-regional transfer capacity from the current 8000 MW to 23,500

MW by the end of the 10th Plan in 2007.

The following are the features of EA 2003:-

The act eases requirements for private entry into generation: It reduces licensing

requirements for generation, except hydropower (which still needs clearance from the Central

Electricity Authority as it uses the states resources). Captive generation is freely permitted, as

are dedicated transmission lines . Captive power plants are also exempted from surcharges for

access to the grid. The act encourages creation of nonprofit societies, user associations, and other

arrangements in rural areas these will be allowed to buy bulk power and bypass SEBs.

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1) It also opens transmission and distribution to private participation, though participants

still require licenses: Private participation in operating and maintaining transmission networks

had been allowed previously, but EA 2003 allows private

companies to potentially set up parallel transmission networks. The policy creates some threat of

competition for existing transmission networks, but has the disadvantage that costly parallel

networks may be built if the state-owned transmission utilities do not or cannot invest enough to

improve their transmission reliability. Existing distribution companies are free to undertake

generation, while generation companies could also engage in distribution.

Multiple distribution licenses may be issued for any particular area.

EA 2003 also requires that all transmission utilities provide non-discriminatory open access to

their system from the outset. Open access in distribution will be phased in as soon as

arrangements for cross-subsidy surcharges can be worked out.

In addition to accepting private participation and planning for open access, EA 2003 proposes a

new tariff framework based on competitive bidding to form the basis for generation,

transmission, distribution, and retail supply for electricity.

The combination of lower barriers to private sector participation and open access to transmission

and later distribution are steps toward facilitating national power trading in addition to the

contracts determined by competitive bidding. Transmission utilities are barred from trading, but

distribution companies will be allowed to trade without separate licenses, and generation

companies can sell to any users as soon as regulations are developed. CERC has set out licensing

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requirements, including capital adequacy and human capital requirements for other companies

wishing to act as intermediaries between

generators and distributors of energy.

2) Restructuring of SEBs: The Act provides general guidelines for restructuring of SEBs,

including vesting of assets in state governments, provisions for sale of parts of the Board to

private companies, and division of the SEBS into separate generation, transmission, and

distribution companies

3) Reduction of Transmission and Distribution Losses:

EA 2003 also contains several provisions aimed at reducing transmission and distribution losses.

It requires universal metering and permits state governments to set up special courts to provide

quick trials in cases of theft. Punishments for theft include up to three years of imprisonment as

well as fines.

4) Consumer Protection:

EA 2003 increases consumer protection by mandating that distribution licensees set up a forum

for addressing consumer complaints in accordance with guidelines to be specified by the state

regulatory commissions. Each SERC must appoint an ombudsman to hear complaints that are not

redressed by the distribution licensees. Regulators are explicitly prohibited from setting tariffs

that discriminate among consumers of electricity except on technical grounds such as load factor,

time and size of consumption, etc. An appellate tribunal provides an avenue for consumers to

protest other regulatory decisions EA 2003 requires advance approval for sales, mergers,

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takeovers of entities within the same state, and states that no licenses would be exclusive within

a region.

These provisions may limit monopoly powers, though much will still depend on the development

of regulation to prevent abuse of market power. There is currently no limit in the percent of

generation capacity that can be owned by a single company.

5) Puts Central Government in the Drivers Sear:

Finally, EA 2003 establishes the Central governments leadership though not explicit control

in developing a common national energy policy, accounting and regulatory norms, as well as

tariff frameworks and arrangements for making subsidies more transparent. The Act empowers

the Central Government to prepare a National Electricity Policy in consultation with State

Governments, while it reiterates the supervising role of the Central Electricity Authority in

advising the central government in the National Electricity Policy, specifying technical and

safety standards for new projects, specifying grid standards for new transmission lines, carrying

out research, and advising all levels of government as well as private licensees.

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IMPORTANT ISSUES RELATED TO THE POWER

SECTOR

PRICING

The transition to market-based tariffs appears to be closer for generation

than

transmission or distribution. Transmission pricing is complicated by the need

to

coordinate state and central policies to ensure prices reflect grid conditions.

Distribution and retail pricing is complicated by the inevitable interface with

consumers, many of whom have been conferred political protection vis--vis

prices.

Generation

The CERCs new tariff guidelines for generation and inter-state transmission

fill in the

gap between the previous system of two-part tariffs and future pricing based

on

competitive bidding. The two-part structure is similar to before, with fixed

costs based on depreciation, interest on working capital, income taxes, etc.

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The key difference is that the tariffs provide a ceiling of 14% return on

equity, as opposed to a floor of 16% under past regimes. The main reason for

this that inflation has fallen down from higher levels to much lower levels as

of now.

Working capital allowances and operations and maintenance costs, transit

and handling losses of coal, and other operating parameters are set at

normative rather than actual levels, so that companies can only make this

rate of return by performing at relatively high benchmark levels. The

regulations also clearly specify applicable interest rates, income tax

assessments and depreciation rates, limiting the potential areas for clever

accounting. The debt-equity ratio applicable for calculating rate of return on

equity has also been increased from 50:50 to 70:30.

The new regulations are an advance over past pricing policies in several

ways. They

reduce the windfalls that generating companies had accumulated in the

past, and reward

generating plants for more efficient operation

The new regulations also increase the rewards for higher plant load factors.

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Transmission

The new guidelines for long-transmission tariffs are similar to those for

generation in

several ways. As in generation, the recovery of annual transmission charges

is based on

normative rather than actual costs of operations and maintenance and

auxiliary power,

allowances for working capital, and other operating parameters. The ceiling

of return on

equity is lowered to 14%, and the debt-equity ratio is also increased to 70:30

as in

generation tariffs. The precise rules for calculating depreciation, interest on

working

capital, are also clarified in the regulations.

Target availability of transmission capacity is the main performance measure

embedded

in the regulations for longer-term contracts it is set at 98% for an AC system

and 95%

for HVDC systems. Recovery of fixed charges is reduced for lower

availability. Rules for

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open access also provide an incentive to maintain transmission lines at high

capacity, as

transmission licensees can keep a quarter of the charges earned from

providing

transmission to short-term customers while returning the balance to long-

term customers

through tariff reductions.

The regulations basic floor for pricing, in Rs per MW per day, is backward-

looking. The

short-term rate based on the average transmission charges over the past

year divided by

average capacity served over the last year. Transmission utilities are

expected to

announce a rate in Rs per MW per day at the beginning of the year, which

remains in

effect for a year..

If requests for access are higher than capacity, snap bids are solicited by the

Regional

Load Dispatch Center. Bidders bid in terms of percentage points above floor

price and

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reservation of trading capacity made in decreasing order of price quoted.

Everybody pays

the lowest price bid. Transmission customers bear the costs of transmission

losses on the basis of average losses in the national transmission system,

calculated ex-post based on actual flows. It would be worthwhile to consider

changing this regime to one in which transmission companies bear the

burden of these losses, as this would create a greater incentive to mitigate

losses.

Distribution

The state electricity boards have been providing subsidised power to the agricultural and the

domestic sector with the subsidy to be recovered from the state Government and the other

customers like industrial and commercial which are supplied power at surcharged rates. Thus the

distribution gets priced at rates that are cross-subsidized. A higher rate is charged to industrial

users to compensate for the lower rate charged to the domestic consumers of electricity and the

close to zero rate charged to the agricultural consumers.

TRI PARTITE AGREEMENT

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All the 28 State Governments signed the tripartite agreements with the Central Government and

Reserve Bank of India to wipe out the outstanding dues of the SEBs to the CPSUs. 26 states

issued bonds amounting to Rs289.8bn as of March 2004.

60% of accumulated interest and surcharge was waived and the balance interest/ surcharge along

with the principle amount was securitised.

The States have issued 15 years State Government guaranteed tax-free bonds (with an interest

rate of 8.5%).

Besides, the penal provisions on non/delayed payment by SEBs, a provision for cash incentive

was also built in.

SEBs were required to establish a Letter of Credit for 105% of their average future monthly

billing with a view to ensuring payment to CPSUs for their future supply of power.

TRANSMISSION AND DISTRIBUTION LOSSES

Some amount of transmission & distribution losses (T&D losses) occur in a power distribution

system on account of inherent electrical resistance of the transmission cables. Internationally,

about 10% T&D losses occur in a power transmission system.

Further, there can be theft which can increase the losses. All of this electrical energy lost

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results in loss of revenue for the power utilities thereby reducing their overall income from the

electricity generated. However, in India, the state electricity boards which are the primary

agencies for distribution of the power sector have T&D losses including theft at a level of around

45%. The SEBs previously had been reporting lower Transmission and Distribution losses since

the quite a few of the power thefts were clubbed with agricultural power consumption this

resulting into a misleading figure of T&D losses. However with the unbundling the truth has

come out. This has resulted in severely straining the financial position of the state electricity

boards.

OPEN ACCESS

CERC has formulated the policy of allowing open access through transmission lines, which are

inter-state in nature. The customers would be categorised as long term customers, those who

want to use the transmission lines for more than 25 years or the existing beneficiaries of the

regional transmission utilities; and short term customers, those not covered in earlier. Allotment

priority would be higher for a long-term customer. The access would be allowedbased upon

stipulations in grid code (for long term customers); and design margins on account of design,

variation in power flows and inbuilt spare transmission capacity (for short term customers). A

long term customer would have to enter into a bulk power transmission agreement with the

transmission licensee. Under the policy, the total costs of power transmission utility (as approved

by CERC) would be shared between its customers.

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Open Access will enable the end power user to chose which electricity generating company he

wants to get his power supplied from and completely circumvent the State Electricity Boards

through whom it is compulsory to acquire power and deal directly with the power producing

company.

The Open Access policy however would come up with the problem of the private sector coming

up with transmission lines parallel to the public sector lines. This would result into a fall in

revenue for the public sector and funds that get blocked in the duplication of the governments

efforts. These funds could be channeled to the generation and distribution areas instead for their

more effective use.

CAPTIVE CONSUMPTION

The power supplied by the public sector undertakings is insufficient for meeting the needs of

some industrial establishments especially in the rural parts of the country where these plants are

located. In addition to this the power supply is erratic and the power generating companies resort

to load shedding. During this time period there is no electricity supply to the plant that would

result in a waste of the facilities and time. Thus to overcome this shortcoming of the electricity

sector in the country, some of the companies have come up with captive power generating plants

near their factories to cater to their power requirements. The sizes of the captive power

producing plants range all the way to 300 MW.

However this act of switching over to captive power plants adversely affects the fortune of the

State Electricity Boards. This is because they are deprived of the higher revenue from these

industrial undertakings and their customer mix gets more skewed towards agricultural customers

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to whom electricity at times is provided free or at a very negligible cost. The price at which

electricity is provided to the farmers is anyways way below the cost of generating it, thus

resulting into heavier losses for the State Electricity Boards.

THE FUTURE OF THE POWER SECTOR

There is a ready market for power that can be supplied to the companies in the power sector and

hence there is tremendous potential for these companies to increase their sales. However the

investments that are required to be made in the power sector are highly capital intensive and also

have a long gestation period. Hence the growth of the power sector will be a combined effort of

both the public as well as the private sectors of the economy.

The Sector faces the problem of the sick State Electricity Boards. The Electricity Act of 2003 has

provided a certain amount of relief to the debtors of the SEBs and memorandums of

understanding that have been signed would give the electricity generating companies more

confidence to deal with these institutions.

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Further progress in the reforms process would help reduce the gap between the cost of supply

and revenue realized for the electricity that is generated.

A comprehensive Blue Print for the power sector development has been prepared envisaging the

robust development of this sector to serve the needs of the nation in the future. A capacity

addition target of 46500 MW in the Central Public Sector Undertakings and 41800 MW by the

State Electricity Boards, State Utilities and the Private Sector has been planned for the 10 th and

11th 5-Year plan combined.

The capacity addition for nuclear power is envisioned at 6400 MW and that for non-conventional

sources at 10700 MW for the period upto the year 2012.

For the immediate 10th Plan the Working Group on Power has estimated a feasible capacity

addition of 46939 MW out of which 24405 MW will be contributed by the Public Sector, 12033

MW by the States and 10501 MW will be contributed by the Private Sector. The estimated funds

for these investments would aggregate to an amount above Rs 500000 crores.

The Energy Requirement is expected to increase as follows:

Year Energy Requirement Peak Load Demand

10th Plan 2007 720 Billion KWh 115645 MW



The implicit growth rate of energy consumption in the country over the next 15 years is

estimated to be in the range of 6.5% - 7% per annum.

The North-East, North and Western regions of the country would account for the fastest growth

in the energy consumed over the abovementioned time period.

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WHY DOES THE POWER SECTOR IN INDIA LOOK

ATTRACTIVE?

India is the second most populated economy of the world. However if you take a look at its per

capita power consumption it is in line with the African Developing Countries. The government

has realized the anomaly and is working towards a solution. It has decided to unbundled the

components of this sector and throw it open to private competition. The private players would be

required to make large investments in the power generation, distribution and transmission fields.

The projects would tend to be capital intensive and have long gestation periods. Yet there is

bound to be substantial interest shown by the big ticket private sector players. Following are

some of the main reasons why:

A] Current Deficit in power supply in the country:

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There is ample room to absorb more production since the current scenario within the power

sector is that of deficit in electric supplies. The industries across the board would be more than

happy to have a stable and continuous electricity supply for meeting their manufacturing needs.

B] Anticipated strong growth in consumption:

Over the last 15 years the electricity consumption has grown at a Compounded Annual Growth

Rate (CAGR) of 7%. The growth in consumption is expected to continue at roughly the same

rate in the couple of decades to come. This would offer the private players a vast unexplored

market that is growing in size.

C] Reform Measures Initiated:

With the passing of the Electricity Act of 2003 a lot of maladies faced by the power sector have

been remedied. The government has unbundled the sector and made entry more feasible for the

private sector. The Act also offers all the current private as well as public companies a host of

benefits (covered previously under the title the Electricity Act 2003).

D] Fiscal Benefits offered by the government:

Several fiscal incentives designed to attract investment in the power sector have already been

implemented. The policy of zero customs duty to selected mega power projects, that serve

multiple states has been liberalized to extend these benefits to all thermal power projects of

1,000-MW and above and all hydel projects of 500 MW and above.

Second, customs duty on equipment for high voltage transmission projects has been reduced

from 25 percent to 5 percent in the 2003-4 budget and basic customs duties on other power

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transmission and distribution projects were reduced from 25% to 10% in the interim 2004-5

budget. Special additional duty of 4% was removed. The 2004-5 interim budget also proposes a

reduction of customs duty on electricity meters from 25% to 15% and a reduction of customs

duty on coal from 25% to 15%.20 The interim 2004-5 budget also extends fiscal benefits

(including 100% tax deduction for profits from new power generators) to 2012, instead of 2006

as had previously been the policy. These benefits will apply to companies that take parts of State

Electricity Boards assets as well as new investors.

E] Financial Benefits offered by the government:

In the interest of obtaining a greater flow of funds to the electricity sector,

100% foreign

equity in hydro-electric, coal/lignite based, and oil/gas based thermal power

plants is now

automatically approved.

Other financial incentives being discussed are:

1) Bonds issued by these companies can be used by the banks to meet their SLR

requirements.

2) Raise cap on interest rates on External Commercial Borrowings to attract investors.

3) Designation of rural electrification, transmission and distribution as priority sectors for

Bank lending.

F] Unexplored Domestic Energy Generating Resources:

Irrespective of whichever way in which electricity is produced, the truth remains that India has

got a lot of unexplored potential energy generating resources that have remained unutilized. The

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energy generated with the help of Hydel power can be easily doubled. Private investors

definitely would be tempted by such opportunities and would assist them in accepting the

proposals for investment.

The attractiveness of the sector is evident from the abovementioned facts. Now let us briefly take

a look at few of the leading players that are currently operating in this market.

National Thermal Power Corporation (NTPC)

National Thermal Power Corporation Limited (NTPC) is the largest thermal power generating

company of India. A public sector company incorporated in the year 1975 to accelerate power

development in the country as a wholly owned company of the Government of India

Today NTPC is the 6th largest in terms of thermal power generation and the second most

efficient in terms of capacity utilisation amongst the thermal utilities in the world.

The following are the details of NTPCs installed capacity:

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Coal Based Projects 18480 MW

Gas Based Projects 3855 MW

Joint Venture Projects 314 MW

TOTAL CAPACITY 22794 MW

NTPCs share on 31 Mar 2004 in the total installed capacity of the country was 19.4% and it

contributed 27.1% of the total power generation of the country during 2003-04.

The following are the main business areas of NTPC:-

1) Generating Electriciy

2) Consultancy Services (Power Sector Related)

3) Renovation and Modernization of power plants

It is providing power at the cheapest average tariff in the country.

NTPC held its public issue on 5th November 2004 where the government divested 10.5% of its

stake to FIIs, FIs and the general public. The offer price of the issue was at Rs 62.50 per share.

The issue got oversubscribed a number of times.

The following are some of the positive associated with the company leading to the good response

to the issue:

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1) 80% capacity expansion over next seven years to drive earnings

NTPC has already taken steps to increase its capacity by 49% by FY09 and plans to further raise

its capacity to 39,000MW by FY12 end. Even with these additions, Indias power shortage looks

likely to rise from current level of 7%, implying that NTPCs new capacity can be easily

absorbed.

2) Power Sector Reforms offer great growth opportunities

(Covered in the earlier sections of this report)

3) Stellar past performance vis--vis capacity addition and power generation

From the above chart we see that NTPC has increased its capacity for electricity generation 10

times over the last 20 years.

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It has also shown an improvement in efficiency and has improved the ratio between the number

of units generated and the capacity installed.

4) Robust growth plans in place

NTPC has drawn up a detailed Corporate Plan for the period 1997-2012 which represents the

company's collective optimism and enthusiasm, inspired by a glorious past, a vibrant present and

a brilliant future.

The capacity addition plans that we have drawn up for the fifteen-year period using all the above

strategies to enable the corporation to become a 40,000 MW company by 2012 A.D.

In addition to the above, NTPC also has plans to venture into the following areas:

Renovation & Modernization of old power stations through a separate joint venture company;

Investment in LNG terminal;

Investment in coal mining and washeries;

Setting up of power plants abroad;

Joint ventures for ash-based industries;

Setting up of small pilot plants using renewable energy sources;

Setting up of hydel power plants to facilitate techno-economic operation of thermal-

hydro mix of NTPC stations;

Setting up of associated extra high voltage transmission lines / inter-regional EHV

transmission lines so as to ensure evacuation of power from NTPC stations.

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FINANCIAL PERFORMANCE

As compared to its physical performance its financial performance also has kept pace and the

company has done well over the years. For the year ended 31st

March 2004, the total income

stood at Rs 25964.2 crores showing a 51% increase over a four year period. The total

expenses were placed at Rs 20056.2 crores showing a 49% increase in the four year period.

The Net Profit After Tax as on 31st March 2004 stood at Rs 5260.8 crores showing a 43%

increase over a four year period.

The earnings of the company have been relatively stable and investment in this company

could be looked upon an investment in a bond providing marginally increasing returns year

after year.

The following has been the performance of the stock after its listing:

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Though the issue price of the stock was Rs 62.5 it opened trading at Rs 75 and since then has

moved on to range of above Rs 90 per share. The company has also declared a 12% interim

dividend in February. 10th March 2005 was the record date for the same.

Based on its projected EPS of Rs 5.9 for the year ending March 2005, its PE Ratio, as compared

to the other players in the industry, is steep at 15. However the company commands a premium

over the other players in the sector since it is the largest and the most efficient producer of

electricity in the country.

TATA POWER

Incorporated in 1919, Tata Power Company Limited (TPL) was promoted by the Tatas. It has

worked in tandem with its sister companies (now merged with itself), the Tata Hydro Electric

Power Company (Tata Hydro) and the Andhra Valley Power Supply Company (Andhra Valley).

TPL pioneered the generation of electricity in India nine decades ago.

Today, it is the country's largest private power generating utility, established as a licensee in

Mumbai and with ambitious expansion plans from being essentially Mumbai-centric to a major

national player, not only in the fields of Power but also in Energy and Broadband

Communication.

The Company has got thermal, hydro, gas and even wind power based producing units. The

details of its capacities is given as under:

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Location

Total

Capacity(MW) Fuel

Khopoli 72 Hydro

Bhivpuri 76 Hydro

Bhira 150 Hydro

Bhira 150 Hydro

Trombay, Maharashtra

Unit 4 150 Gas / Oil



Unit 7 180 Gas

Jojobera 67.5 Coal

Wadi 75 Coal

Jojobera 120 Coal

Belgaum 81.3 Diesel OilAhmednagar 17 Wind

Jojobera 120 Coal

The company today has got a combined capacity of 2258.8 MW.

Besides Tata Power also offers its expertise for the following activities:

Setting up Independent Power Plants (IPP)

Setting up Captive Power Plants (CPP)

Power Transmission and Distribution Projects

Operation and Maintenance Services (O&M Services)

Remnant Life Assessment (RLA) and Performance Evaluation Services of Power Plant

Equipment

Overseas projects : Erection, Testing, Commissioning & Trial operationsPower

Plant/Utility Operations Management and Plant Operators Training

POSITIVES FOR THE COMPANY:

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1) The company will get benefited by the governments move towards encouraging greater

private participation in the private sector and can now look at even alternative expansion plans in

transmission and power trading since these have been opened to participation to the private

sector.

2) The company has shown a very decent performance in its Delhi operations. The Transmission

Losses in Delhi are down to 36.4% in September 2004 as compared to 55% in July 2002.

3) Value of Investment works out to around Rs 137 per share.

Investment Total Value Value per share

Tata Telecom Rs 1450 cr 73

Tata Sons / TCS Rs 870 cr 44

Tata Petrodyne Rs 320 cr 16

Others Rs 90 cr 4

4) Steady nature of revenues make its business like a cash cow.


Description 2002-03 2003-04

Net Sales 43,005.00 42,390.80

Other Income 1,520.30 1,599.90

Total Income 44,525.30 43,990.70

Expenditure -31,163.40 -30,471.30

Operating Profit 13,361.90 13,519.40

Interest -3,412.10 -2,837.20

Gross Profit 9,949.80 10,682.20

Depreciation -3,180.40 -3,339.50

Profit before

Tax 6,769.40 7,342.70

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Tax -1,570.20 -2,251.90

Profit after Tax 5,199.20 5,090.80

Net Profit 5,199.20 5,090.80

Equity Capital 1,979.10 1,979.20

Reserves 39,594.60 42,779.80

EPS 26.27 25.72

Thus we see that at the current price of Rs 400 the company trades at a PE Multiple of 15.55.

However if we subtract the value of the investments we would get an adjusted PE of 10.2.

Thus the valuations at the present moment seem to be reasonable. The company is in a position

to take advantage of the investments it has and generate free cash flow that can be utilized for its

expansion plans in the future.

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We see that the stock price of the company is in an upward range over the last 2 years in line

with the positive developments taking place in the power sector.

However the company is subjected to regulatory changes and any adverse developments on this

front can have negative implications for the stocks performance.

RELIANCE ENERGY LTD.

Reliance Energy is Indias largest integrated private sector power utility company. The company

is into generation, transmission, distribution and trading of power. It distributes over 5,000 MW

of power - the largest in the country. Reliance Energy powers 2 out of 3 homes in Mumbai and 1

out 2 in Delhi and has a consumer base of 2.5 crore in Mumbai, Delhi and Orissa.

The company formerly known as BSES Ltd. was taken over by the Reliance group in the year

2003 and subsequently its name was changed to what it is now. The takeover was completed on

18th Jan 2003 at an offer price of Rs 230 per share.

The 940.59 MW Generation capacity of the Company comes from five projects:

Dahanu TPS the 2x250 MW multi fuel based thermal power station at Dahanu near

Mumbai.

7.59 MW Wind Farm Project at Jogimatti in the district of Chitradurga in Karnataka.

BSES Kerala Limited: The 165 MW combined cycle power station at Kochi, Kerala.

BSES Andhra Power Limited: The 220 MW combined cycle power plant at Samalkot

in Andhra Pradesh

Goa Power Station : The 48 MW naptha based combined cycle power plant at Goa.

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Extensive Distribution Network:

Seven decades of experience and continuous investment in modernizing its distribution

infrastructure have helped the company achieve the enviable distinction of operating its network

with 99.99% reliability.

Reliance Energy Ltd. has established 4124 distribution sub-stations, 2912 km of high tension

(HT), 2966 kms of low tension (LT) cable and 2466 kms of streetlight cable. The company has

an installed distribution transformer capacity of about 2422 MVA. During the last five years

(1998-2003) the installed capacity of power transformers has increased from 1502 MVA to 1752

MVA. The present maximum demand for the area is around 1226 MVA. The ratio of installed

capacity to maximum demand is 1.43. The ratio of distribution transformer capacity to the

maximum demand has gone up from 1.82 to 1.98.The efforts made towards achieving higher

levels of efficiency have reduced distribution losses to 13.4% - which is perhaps the lowest in the

country.

Today the company caters to 5 million customers.

Reliance Energy Limiteds Mumbai operations cover a population of 9.0 million within an area

of about 384 sq. kilometers. The Distribution network handled and sold 5,879.66 MUs in the

year 2002-2003.

Besides Reliance Energy has got the following subsidiaries in different states:

New Delhi: BSES Rajdhani Power Ltd

BSES Yamuna Power Ltd

Orissa: WESCO

NESCO

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SOUTHCO

POSITIVES FOR THE COMPANY:

1) It has been able to bring down the AT&C Losses to around 13.5% as mentioned before.

With every 1% reduction in the AT&C Losses the net profit of the company will grow by

Rs 28 crores.

2) Reliance Energy holds an exclusive licence to supply energy to suburban Mumbai upto

the year 2012.

3) It has ready availability of power supply from its own plant and Dahanu and the balance

from Tata Power Company for its Mumbai distribution operations.

4) It has issues FCCBs that can be converted into shares at Rs 245 per share at any time

between Dec 2002 and Dec 2007. These FCCBs are deeply in the money. Upon their

conversion into equity shares Reliance Energy would be able to raise Rs 2700 crores as

long-term debt while maintaining the debt-equity ratio at 1:1.


Description 2002-03 2003-04

Net Sales 26,918.50 33,995.10

Other Income 848.5 1,832.70

Total Income 27,767.00 35,827.80

Expenditure -22,879.00

-

27,767.70

Operating Profit 4,888.00 8,060.10Interest -763.5 -699.3

Gross Profit 4,124.50 7,360.80

Depreciation -2,598.10 -3,187.20

Profit before Tax 1,526.40 4,173.60

Tax 96.9 -431.4

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Profit after Tax 1,623.30 3,742.20

Reserves 24,006.70 1,752.60

EPS 8.85 25.86

We see that the EPS has almost trippled for the stock in the between 2003 and 2004.

At the current price of Rs 560 the stock trades at a PE multiple of 21. The stock may seem a bit

expensive but the company had come up with announcements in between to pick up the stock all

the way down to Rs 520. Hence the stock has remained at these high levels.

Like the other stocks in the power sector even Reliance Energy is seen in an uptrend following

positive developments on the power sector front for the entire power industry.

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BIBLIOGRAPHY

PUBLICATIONS:

Argus Global Markets

Asia Pacific Energy Research Institute

International Energy Agency Bulletin

Economic Times

Business Line

WEBSITES:

Powermin.nic.in

Cerc.nic.in

Ntpc.co.in

Yahoo India Finance

www.indiainfoline.com

Documents

Analysis of the Power (Electricity) Sector