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We met the Ministry of Power, the Ministry of Environment and Forests, and the Ministry of Coal to gain further insights into the current challenges being faced by the power sector, and the way forward. Additionally, we met the Ministry of Road Transport and Highways to understand the pace of project awards.

Ministry of Power (MoP): Fuel supply/demand are key issues, would throw up M&A opportunities

MoP is upbeat on the possibility of 52-55GW capacity addition in the 11th plan (YTD addition of 35GW under the 11th plan). The key challenges are: (1) fuel availability, (2) inland logistics, and (3) back down/lower demand by SEBs, due to deterioration in financials. Imported coal comes with its own challenges in terms of acceptability by SEBs (given higher cost of power generation), inland logistics, etc. Recently, many states in the central region have resorted to blackouts rather than buying high cost power. These could mean that several projects may operate on sub-optimal PLFs in the interim period.

Given the headwinds, current conditions would throw up possibilities for mergers and acquisitions. Projects with poor due diligence could suffer, similar to the Steel sector during the period 1997-2000.

The Shunglu Committee Report (to suggest measures for reduction in SEB losses) is delayed and is now expected in May/June 2011. The key task is to draw the finances of all SEBs on a common platform.

Ministry of Environment and Forests (MoEF): Environment/forest issues galore as awareness/access to knowledge infrastructure increases

Environment and forest clearances have come to the forefront, with the spread of "knowledge infrastructure" like Internet, mobile penetration, and Right to Information Act.

CEPI embargo is unlikely to be relaxed/removed, but case-to-case relaxation is possible, as TOR has been restored on 12 blocks for Coal India. "Go" and "No-Go" concept may not be of great significance and MoEF believes that case-to-case evaluation is the fastest way to resolve issues and expedite project execution.

Going forward, several new mining projects can be auctioned, underground mining can be encouraged, etc to address the environment and fuel availability issues.

Ministry of Coal (MoC): Group of Ministers is a better platform to build consensus

Coal production has been impacted by environmental issues, etc and Coal India's revised production targets are down by 60-65m tons for FY12 v/s the original targets.

Formation of Group of Ministers is a better platform to arrive at consensus across various ministries. However, the impact of reforms/action on these fronts is unlikely to be seen before FY13, given initial delays/execution time lag.

Ministry of Road Transport and Highways (MoRTH): Accelerated pace of project award

Currently, there exists a ready bank of ~20,000km projects, where major milestones in terms of land acquisition, environment clearances, etc are already achieved.

Project award is expected to gain momentum post impending/ongoing elections in various states. MoRTH is hopeful of attaining momentum in project awards in FY12 and FY13, with target to award 10,000km each in both the years.