The power sector is seeing a renewed activity around the renewable sector. The conventional energy sector is still facing the same problem of fossil fuel supply, cost and importantly the tariff. Meanwhile the renewable energy sector is seeing fresh Capital Expenditure and the putting up of new projects.This sector has already seen a good amount of foreign flow. The Transmission and distribution remains the areas of concern as the major focus is given to the generation sector neglecting these two vital aspects.

The power sector companies are importers. The companies in the conventional sectors import fossil fuel and the bills are primarily paid in USD. The renewables import panels, modules to name a few are primarily from China and the billings are done in USD. The companies in this sector put up plants and projects, they borrow in the form of ECB, bonds, capex BC etc. The borrowings are primarily long term.The challenges of FX fluctuation are huge for this sector as the phases are time consuming; like at the start bid is won for a project, signing of PPP, import planning, LC opening, commissioning of projects etc. The FX risk starts well before the actual imports start. The challenge in this sector remains to create hedging lines and pricing etc.Recently the hedge costs have become high, so the need to manage the risk in a cost effective manner with constant monitoring and course correction is required.

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Client Scenario

Our client is a large power company who has diverse and huge exposures both onshore and offshore. They were facing many challenges within their Hedging Operations. The questions centered around when to hedge, how much to Hedge, which banks would work best for them. We reviewed their Risk Management Policy and aligned it with their vision. With the new Risk Management Policy in place, the client got clarity on many areas which were loosely defined earlier. We have been supporting their team in end-to-end risk management starting from strategy making, negotiation, reduction in hedge cost with a primary focus on risk management.

We have also been providing month-end, quarter-end derivative valuations and helping them in hedge accounting. The client has seen a tremendous amount of cost savings in addition to peaceful nights’ sleep as their exposures are well secured.

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Hedging Regulations - Importers, Exporters and Foreign Currency Borrowers

1st July 2022, 3 pm IST onwards

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