Modified Coal Linkage Policy could be a game-changer: Angel Broking

Views of Mr. Mayuresh Joshi (Fund Manager, Angel Broking):

The Cabinet Committee on Economic Affairs (CCEA) on May 17th 2017 approved the Modified Coal Linkage Policy for the power sector. Under this policy, all power plants will be assured of adequate supply of coal at competitive prices. Over the last few years, the big challenge for Indian power companies has been ensuring adequate and timely supply of coal. Frequent delays and unviable economics forced power plants to operate at uneconomical Plant Load Factors (PLF).

The new Coal Linkage Policy will only cover the regulated units. Under the policy, the linkages will be first awarded to state owned DISCOMS. In turn, these DISCOMS will assign these linkages to state/central power producers on allocation-basis. For the independent power producers (IPPs) with Power Purchase Agreements (PPA), the allocation will be via the reverse auction route.

The approval of coal linkage policy by the CCEA is a welcome move for the power sector. Thermal power generation capacity i.e. 221GW represents India's 67% of the total power generation capacity. Of this, coal based capacity works out to be 88% indicating lions share in overall capacity, so the new coal linkage policy is likely to be positive for the sector.

While the full contours of the policy are yet to be announced, if the Coal Linkage Policy can ensure the flow of dry fuel to power plants at competitive rates, it can be a game-changer for power companies. The proposal had been pending with the cabinet for a long time. Power Minister, Piyush Goyal has promised speedy and effective implementation of the Coal Linkage Policy to help mitigate the problems of power utilities.

Source : Equity Bulls

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