Chorus for hike in ROE in power sector increases...

 

Chorus for increase in the return on equity (ROE) in the power sector is rising especially in the wake of commencement of tariff block for 2014-19 from April 1. The Central Electricity Regulatory Commission (CERC) during tariff block of 2009-14 had fixed the ROE of 15.50% plus 0.5% for timely competition. 

The issue came up for discussion on several rounds of meetings held at the power ministry and central public undertakings and also at the CERC’s advisory committee.
 
Component of tariff comprises ROE, interest on loan capital, depreciation, interest on working capital and operation and maintenance expenses. Industry players said that the rise in ROE will help the investors to build up sufficient internal accruals for capacity addition and to ensure better cash flow. They also argued that the regulatory stability is a need of the hour and hoped that the upward revision in ROE will give a much needed impetus to the sector.
 
Ashok Khurana, director general, Association of Power Producers (APP) told Business Standard that the CERC advisory committee discussed the issue at its recent meeting. ‘’There was a unanimous opinion that this is not the time to tinker with ROE. Infact, all efforts should be made to revive investors interest in the power sector.’’ Khurana said looking at the environment there is no appetite for investment in the power sector. Reduction of ROE if any, would ones again pull the sector further back.
 
RN Nayak, chairman and managing director, PowerGrid Corporation said ROE is generally governed on interest rates especially G-Sec rates, SBI PLR rates and AAA corporate bond rate. ‘’Present interest rate is quite harsh than the interest rate prevalent during late 2008 and early 2009 before the commencement of previous tariff block of 2009-14. Thus there is no reason why ROE should be reduced in the coming tariff block of 2014-19. Infact, PowerGrid Corporation had requested the regulator to enhance the same,’’ he added.
 
RV Shahi, former power secretary said that investment in power sector in general should be made attractive.  He gave the example of the issues prevailing in the transmission sector. ‘’In case of transmission sector of late a number of uncertainties have crept in. Right of Way has become a real issue as a result of which gestation period has increased. Therefore, better rate of return due to idling of equity in increased period of gestation appears essential,’’ he noted.
 
PC Pankaj, chairman and managing director, North Eastern Electric Power Corporation made a strong case for maintaining the ROE in the current uncertain environment. ‘’As fixed during 2009-14, ROE for hydro should be fixed at 15.5% and for storage at 16%. It should not be reduced considering the huge investment required in the hydro power projects,’’ he added.
 
ABL Srivastava, director finance, NHPC also pleaded for rise in ROE for the power sector as a whole but insisted that additional ROE for hydro sector should be sanctioned considering the uncertainties involved during the project development. ‘’Being a green power such a incentive should be given for the hydro sector. Effectively during the course of time the tariff of hydro power projects will be low,’’ he said.
 
RP Singh, former CMD, PowerGrid Corporation said that the investors need to be induced in the power sector and especially in the transmission sector. ‘’ROE in the transmission sector should remain sustainable especially when the investors' interest is fading. ROE needs also to be linked with 98% line availability,’’ he added.

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CIL refuses to supply power plants commissioned after December 2011…

Power India found that in a twist to the unending drama over coal supply, Coal India Ltd (CIL) has refused to supply to power plants commissioned since December 2011. The move is set to stall investment worth Rs 40,000 crore in new power capacity of 8,156 Mw. This includes a 300-Mw unit of Reliance Power’s Rosa power plant in UP and a 660-Mw plant of China Light & Power (CLP) at Jhajjar, Haryana.

 

The source of the current controversy is an April 19 circular issued by CIL’s subsidiary, Central Coalfields, for May. The circular stated the rake movement plan would be accepted only from plants that had signed fuel supply agreements (FSAs). This could bring power companies under pressure, as these are unwilling to sign FSAs in their current form, with a low-penalty level. Power companies give a rake movement plan to CIL, the coal ministry and the rail ministry a month before tying up necessary evacuation facilities for coal transport to plants

 

The circular has left power companies jittery, as these were hopeful of receiving coal under the existing memorandum of understanding (MoU) route until FSAs were signed. CIL’s fresh missive is despite Prime Minister Manmohan Singh’s diktat in February, followed by the President’s order in April, asking the company to meet at least 80 per cent of the coal supply to 50,000-Mw capacity plants to be commissioned up to 2015, including 26,000 Mw commissioned by December 2011.

 

“CIL’s insistence on accepting the rake movement plan only from plants with FSAs has stalled 8,156-Mw capacity projects. This is an operational issue, but shows Coal India’s attitude towards meeting the supply obligation. This has happened despite the power ministry’s assurance to us that supply would continue under the MoU route,” Ashok Khurana, director-general of the Association of Power Producers (APP).APP is an industry representative body of 22 major companies in the sector.

 

A Reliance Power spokesperson declined to comment on the matter.

 

Coal India would sign FSAs for 900 Mw of the total 1,200 Mw capacity of Reliance Power’s Rosa plant. The current controversy covers only a 300-Mw unit of the plant, commissioned after December 2011. CLP could not be contacted for comments.

 

Until March 2009, CIL supplied coal to power plants under FSAs with 90 per cent supply commitment. Since then, however, the world’s largest coal producer has been insisting on supplying coal under the MoU route, with only 50 per cent commitment and no legal obligation, as delayed clearances for new mines took a toll on production. When CIL decided to sign FSAs for projects commissioned till December 2011, after a Presidential directive, companies were assured by the power ministry that FSAs for projects completed by March 2012 would also be signed in due course. Meanwhile, supply to these plants would continue through the MoU route.

 

However, “apprehending CIL’s ingenuity in springing surprises”, APP took up the matter with the power ministry, expressing fear over the possibility of CIL refusing to supply coal. The power ministry had then assured the power industry that status quo would be maintained until FSAs were signed. “This circular, if not withdrawn immediately, would ground the entire 8,156 Mw capacity commissioned after 31 December 2011, adding to the power deficit and consumer woes. As the summer intensifies, the position is likely to worsen and, therefore, the capacity created should be utilised to the maximum,” Khurana said in an April 25 letter to Power Secretary P Uma Shankar, Coal Secretary Alok Perti and Shatrughna Singh, joint secretary to the prime minister.

 

Meanwhile, CIL has already signed at least 10 of the 50-odd FSAs envisaged with power companies for plants commissioned between March 2009 and December 2011.

 

 

 

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