Power generation stocks rose for the second day in a row following the directive from the Prime Minister, Manmohan Singh, to Coal India, the state-run coal giant, to sign fuel supply agreements (FSAs) with power plants that have entered into long-term PPAs (power purchase agreements) with power distribution companies and have been commissioned/would get commissioned on or before March 31, 2015.

On the Bombay Stock Exchange, Jindal Steel and Power rising smartly by 4.94 per cent to Rs. 639.95. Others included Adani Power Rs. 81.55 (3.7 per cent), Lanco Infratech Rs. 20.30 (6.28 per cent), Neyveli Lignite Rs. 102.70 (6.10 per cent) and Tata Power Rs. 113.35 (2.63 per cent). Shares of power equipment manufacturer BHEL also rose by 2.85 per cent to Rs. 284.85.

However, shares of Coal India dropped 5.41 per cent to Rs. 321 as the company will have to sign fuel supply agreements before March 31, 2012.

If the supply is below 80 per cent, then Coal India would be penalised, whereas, in case the supply is above 90 per cent, the company would be provided incentive.

The FSAs will be signed for full quantity of coal mentioned in the Letters of Assurance (LoAs) for 20 years.

The agreement would benefit power plants with estimated capacity of more than 50,000 MW.

It is felt that this is a major move in solving the problems of power sector and is likely to boost investors' confidence in the power sector, the statement added.

According to a report from SMC Investments and Advisors, Coal India enhanced its offtake sequentially to 110 million tonnes during the third quarter of 2011-12 from 93 million tonnes in the previous quarter.

To increase production in mines, which are reaching peak capacity, environmental clearance for additional 25 per cent capacity has been actively taken up for consideration of Ministry of Forests & Environment. CIL had increased the prices of coal to the extent of 5-12 per cent by moving to gross calorific value (GCV)-based pricing mechanism with effect from January this year.

However on January 31, it delinked the rates from international parity prices, thereby effectively reducing the price for different grades of coals.

The company has maintained that it is for continuing with the GCV-based grading of coal and with this move it has only removed the anomalies in the pricing structure.

Keywords: power stocks