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The power trading business in the country, estimated to be worth about Rs 20,000 crore, may take a hit on its profitability as payments are getting delayed from their financially-weak customers.

The power traders are already seeing a sharp decline in their trading volumes in a market grappling with high business risks, the experts have warned.

Most of the power distribution companies or discoms are delaying the payment for electricity purchased from traders. This in turn is putting stress on the working capital of trading entities, as they have to make prompt payments to power generators.

“We are witnessing a dip in power trading volume in this quarter,” country’s largest power trader PTC India Chairman and Managing Director Tantra Narayan Thakur said.

“The poor financial health of discoms is ‘more of a concern’ as many of them are unable to pay for the power they have purchased or which they want to buy,” he said.

There are around 40 power trading companies. Out of them, only about five or six are active. Besides PTC India, these include NTPC Vidyut Vyapar Nigam, National Energy Trading and Services, Tata Power Trading Company and Reliance Energy Trading.

PTC India alone is estimated to command over 40 per cent of market share.

Going by the estimates, the turnover of Indian power trading market is worth about Rs 20,000 crore and more than 50 billion units of electricity is traded annually.

“Volumes are coming down.. At the moment, the (profit) margins are getting stressed… But in the long term, power trading market continues to be positive,” National Energy Trading And Services (NETS) Whole Time Director M N Ravi Shankar said.

NETS, part of diversified Lanco group, is a major private sector power trader.

For each unit of power sold, the margin for the trader is estimated at about four to seven paise.

Shankar noted that working capital requirements are growing, which in turn, strains the resources of many power trading companies.

Ratings agency Fitch’s Director of Asia-Pacific Utilities team, Salil Garg, said that business risks are (now) higher for power traders.

“Apart from the poor financial health of discoms, competition is also hurting the profit margins of these entities,” he added.

As per the data available with the Central Electricity Regulatory Commission, the reported short-term contract volume for electricity purchase fell 55 per cent in November from the previous-month level.

In November, the short term contract volume stood at 1,568.57 million units as against 3,474.94 million units in the previous month.

Sources said that Tamil Nadu Electricity Board (TNEB) has delayed payment of over Rs 1,000 crore in dues to PTC India for the electricity purchased earlier. Uttar Pradesh Power Corporation Ltd (UPPCL) also owes a significant amount of the dues to PTC India, they added.

“The case of TNEB and UPPCL, are exceptional cases wherein the payments have been delayed,” PTC India had said in November.

The reluctance of many financial institutions to lend to loss-making discoms is also making things difficult for power traders. As a result, many discoms are going for power cuts, experts said.

“At the moment, the prices are determined more by the demand from the buyers’ side rather than on the basis of generation costs,” Shankar pointed out.

According to him, the poor financial health of power distribution companies (discoms) is a cause for concern and there needs to be financial discipline for discoms.

In a recent report, Fitch said that counter-party risks facing Indian power traders have increased significantly whereas net margins have only slightly improved.

“Compared to earlier quarters when payment billing and receipt cycle was weekly, over the past few months the trend of payment from utilities has changed. “The payments are now being received on the 30th day,” PTC India had said in November.

Source By Business Standard (26/12/2011)

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