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Friday, December 9, 2011

Rationalise energy prices

“It is the economy stupid” said Bill Clinton. How true. If there is one message that the political elite should distill from the economic and financial crisis that is currently roiling liberal democracies around the world, it is that short-sighted and self-interested politics cannot ride roughshod over the remorseless logic of the market. The eurozone crisis has already put paid to four governments in Greece, Ireland, Italy and Spain. The reason Barack Obama may still survive into a second term is because the Republicans appear more intent on undermining their most credible candidate Mitt Romney rather than coalescing to exploit the huge cracks that have appeared in the US economy. The UK finance minister has just announced a budget that heralds a ‘lost decade’ of economic growth and the conservative Lib Dem coalition is writhing with tension. This message needs to be internalised by our own leadership. With economic growth slipping below 7%, with inflation in double digits, with high interest rates and a depreciating currency, they should be casting their gaze beyond their political navel to economic management. Else, they too will find their fortunes upended at the next elections.

What then might one ask should be their economic priorities? Clearly there is no one answer. Politicians, especially when advised by economists, have a penchant for ploughing their own constituency-based furrow. There will, therefore, be as many answers as there are respondents. But it would be a surprise if a majority did not list energy (along with water and food) on their agenda. This is because everyone knows that the spin and direction of the current spiral of energy scarcity and inefficiency will have to be slowed and reversed if the Indian economy is to stay on the growth turnpike.

The underlying reason why energy security for India is a fast-fading aspiration is because the price of energy is misaligned from the market. It is a distortionary price mechanism driven by politics and institutional, vested interests rather than economic logic. It is why the gap between energy demand and supply has widened, why the balance sheets of our energy PSUs have eroded while adulteration, blackmarketing and waste have run rampant.

Three decades back, for instance, India imported 25% of its crude oil requirements. Today it imports 80% and the Planning Commission has estimated that, due to slack production and increased consumption, this import dependency will increase to 87% by 2016-2017. We have huge reserves of coal but still the Planning Commission is projecting that by the end of the 12th plan we will import approximately 250 million tonnes of coal. This, of course, only if the commensurate import and distribution infrastructure have been put in place. T he energy companies are in dire financial straits. IOC, BPCL and HPCL—the three oil marketing companies—will, for example, “underrecover” (a euphemism for loss) around R130,000 crores in FY 2011-12 because of the political diktat that they sell diesel, kerosene and LPG at prices below cost. These companies were once almost debt free but today they have bank borrowings in excess of R100,000 crores. The interest burden wipes out the bulk of their operating margin. Many more facts could be cited to illustrate the deepening energy crisis. Our political elite is, of course, aware of the problem but their hope must be that it will not explode on their watch. This must have been the hope of the Greek politicians as they fudged their accounts and accumulated debts before the economy hit the skids and they were turfed from power, averaging approximately $250,000 for every working Greek.

So what is to be done? It would be naive to suggest that prices should be wholly market-determined. The din and furore surrounding the current debate on retail FDI would be a pipsqueak compared to the outcry that would ensue.

But the needle of change does not have to be pushed full circle. Incremental shifts in the right direction can also generate billions in value and pull the energy sector back from the brink. For instance, as everyone knows, kerosene subsidies do not reach the poor but get sequestered by the middlemen who then trade them on the black market. There is a proposal to discontinue these subsidies and to transfer the released funds for disbursement directly by the state governments. This could be expedited. There is a suggestion that subsidised LPG cylinders should be rationed, especially to those in higher income brackets. This could also be fast-forwarded. There is an idea that of the two grades of diesel currently sold in the country (BSiii & BSiv), the higher grade (BSiv), which accounts for around 15% of total diesel consumption and which is used inter alia by those who drive SUVs, should be partially deregulated. Similar incremental proposals have been put forward for rationalising coal and gas prices—all with the objective of mitigating the costs of the disconnect between a market determined and an administered pricing structure.

None of these proposals are without flaws or easy to implement. The kerosene dealers and distributors would fight change tooth and nail; the state governments might find it practically infeasible to make direct disbursements and dual pricing of commodities will inevitably encourage diversion and adulteration. But the ideal must not be allowed to trump the positive. Doing something can often be better than doing nothing. The essential point is that in our connected world the market will ultimately assert itself, and that if energy pricing continues to run counter to this force the economy will sooner rather than later slip into reverse gear. And at that point the Clintonian comment may well define our politicians’ epitaph.

Power Ministry dissent derails PSU buyback plan

The finance ministry's plan to meet the disinvestment target through share buyback by state-run companies has run into a problem with power ministry saying that all six companies under its administration will not be able to participate in the process.

In a dissent note to the North Block, the power ministry has argued that all the state-run companies have big expansion plans to tackle the massive power shortage in the country, and therefore, won't be able to spare cash for the share buyback.

"They (power ministry) have argued that they are targeting a capacity addition of almost 100,000 MW during the 12th Five Year Plan (2012-17)," said a finance ministry official, requesting anonymity. "This would need huge investments, and PSUs under them have already committed funds for various projects," the official said.

The public sector enterprises under the administrative control of the power ministry are NTPC, Power Grid, NHPC, REC, PFC and NEEPCO.

According to estimates, the combined cash surplus with all these state-run firms is around Rs 50,000 crore, more than current year's fiscal disinvestment target of Rs 40,000 crore that the government is struggling to meet, having raised just Rs 1,145 crore so far.

The chairman of a state-run firm backed the power ministry's response, saying his company's cash surplus position paled in comparison to its massive investment requirements.

So far, only mines ministry and the department of public enterprises (DPE), a nodal agency for 246 state-run firms, have supported the cabinet note proposed by the finance ministry on share buyback.

But the DPE has also cautioned that companies should not be forced to buy back shares, suggesting that the option should be left to the respective boards.

"We have given our nod to the proposal but said that the buyback should be proportionate, and all guidelines of the market regulator Sebi should be followed," said an official with DPE.

The finance ministry has moved a cabinet proposal to give executive sanction to listed companies having surplus cash for buying back their shares.

The government is looking at various options, including cross-holding, share buyback, auction and special dividend to raise disinvestment proceeds. Finance minister Pranab Mukherjee has, however, said the government will stick to its disinvestment target of Rs 40,000 crore in this fiscal.

Power Grid Corp: Powering ahead with low-risk business model; assured returns

At a time when the stock market is volatile and the macro environment remains uncertain, it's advisable to invest in defensive stock trading at low valuation. Power Grid's low-risk business model and strong earnings visibility offer a defensive investment opportunity. Investors can consider buying the stock at its current market price.
About the Company
Power Grid is a Navratna company with 50% market share in the transmission business and has a monopoly in inter-state transmission. Nearly 95% of its revenue is generated from the transmission business, with the balance coming from the consulting services provided to power companies in India and abroad and from leasing its optic fibre bandwidth to telecom operators.
It is controlled by the Central Electricity Regulatory Committee (CERC) and operates under a regulated business model with a fixed return on equity. The company is assured a return of 15.5% plus some incentives on equity investments, from its clients.

Power Grid's net sales have grown at a compounded annual growth rate (CAGR) of 21% over the last three years to Rs 8,389 crore in FY11 and the profit after tax has grown at a CAGR of 30% to Rs 2,697 crore. The company's major cost is capital expenditure on setting up transmission lines, while there is hardly any operational cost.
As a result it has an operating margin as high as 90%. The company's earnings growth will depend on how much capital expenditure it can afford and how fast it can capitalise its capital expenditure. In simpler terms, how fast it can commission its transmission lines so that the return on capex is faster.
For the XIth fiveyear plan, the company's capex target is Rs 55,000 crore, of which it has already incurred 70% in the first four years and roughly 60% of it has already been commissioned.

And for the XIIth five-year plan, the company, which has a strong execution record, has already set an additional capex target of Rs 95,000 crore. Power Grid's dividend pay out ratio is 32% and it has a very strong balance sheet

Given the company's huge capex plans and strong execution record, the company's 30% growth in earnings is likely to continue for another few years. At the current market price of Rs 95, Power Grid's stock is trading at price to earning multiple of 9.7 which appears to be attractive.
Investment Rationale
India's GDP growth rate has outpaced the growth in installed power capacity in last 10 years, increasing the demand-supply gap. Given the monopoly that Power Grid enjoys in the central transmission system, it will benefit from this increasing demand. The company has an extremely low-risk business model.

FDI in power sector swells even as domestic fund flows trickle

At a time when domestic investors are applying the brakes on power sector funding, foreign direct investment (FDI) inflows into the sector could actually be headed for a new record this fiscal.

In a signal of bullish sentiment among global investors, FDI inflows into the power sector — at a robust $1.3 billion during the first six months of the current fiscal — were just marginally short of what came in during the entire 12 months of each of the previous two financial years.

The FDI inflows, apart from investments routed through Mauritius, include fund flows from France, Singapore, the UK , the UAE and the US. Recent FIPB (Foreign Investment Promotion Board) approvals include proposals by Hinduja Energy for induction of foreign equity into a domestic firm and fund raising plans for coal washery operator ACB Ltd and Chennai-based Gita Power and Infrastructure. FDI up to 100 per cent is permitted under the automatic route for projects involved in electricity generation (except atomic energy), transmission, distribution and power trading.

The news on robust foreign inflows comes in at a time when domestic investor interest in the power sector is petering out and is clearly visible in the form of the tepid response by domestic banks and financial institutions to the funding of new private generation projects. The main concern is about adequate coal supplies for new projects, amidst signs that developers of projects close to commissioning could default on their loan repayments due to fuel shortages.

Subdued merchant power rates and reluctance among cash-strapped State Electricity Boards to buy power from the spot market are adding to investors' woes. The worsening financial position of the SEBs — their losses are pegged at Rs 55,000 crore — has already begun to affect existing power generators. While NTPC's bottomline was dented last fiscal due to lower offtake by SEBs, private developers also face the same risk.

An official with state-owned lender Power Finance Corporation admitted that fuel risk had made them cautious while evaluating projects. Edelweiss, in a recent wrap-up on the power sector, too attributed “serious business risks” for power developers, cascading down to their lenders, due to coal shortfall. These fuel risks, it said, were bigger than the risk arising out of lower or less remunerative merchant sales.

The overall funding requirement in the Eleventh Plan (2007-12) was estimated at Rs 10,31,600 crore (about $230 billion at an exchange rate of Rs 45) by the Working Group on Power at the beginning of the current Plan period.

UMPPs not getting delayed due to coal blocks allocation: Govt

The 4,000-MW capacity ultra mega power projects in the country are not getting delayed due to allocation of coal blocks, the Minister of State for Power, Mr K.C. Venugopal, informed Parliament today.

“There is no delay in commissioning of ultra mega power projects (UMPPs) due to reasons attributable to problems in the allocation of coal blocks,” he said in the Lok Sabha.

For pit-head UMPPs or where the coal mines are attached to the projects, one of the pre-requisite for calling Request for Qualification (RFQ) is allocation of coal block by the Ministry of Coal.

And since the coal blocks are allocated even before the initiation of bidding process, the delay could not occur for want of allocation of coal blocks, he added.

However, he said that the last date of submission of RFQs for Chhattisgarh UMPP has been extended nine times as the coal blocks of these UMPPs were categorised as no-go area by the Ministry of Environment and Forests.

The last date of submission of RFQ for Chhattisgarh is December 5.

However, in view of the decision of Group of Ministers (GoM) on environmental and development issues, relating to coal mining and other development projects, to do away with the go/no-go concept, the MoEF has been requested to clarify the matter for proceeding ahead with the bidding process of Chhattisgarh UMPP.

At present, the preliminary bids for the Bedabahal UMPP in Orissa have been invited and as many as 20 bidders have evinced interest in setting up the project.

Solar power prices inching towards common man's reach

The aggressive tariffs quoted by solar power developers in the second round of bidding under the National Solar Mission shows that solar power is slowly inching towards the reach of the common man.
The industry has been speaking of “achieving grid-parity” in about four years, meaning that solar power would cost no more than what the distribution companies sell at in less than half a decade. The bids that opened today suggest that grid-parity may well happen even earlier.
The French company, Solairedirect won a mandate to put up a 5-MW project by quoting a tariff of Rs 7.49. The highest quote was of Green Infra, of Rs 9.39.
What this implies is that some fifteen project developers believe that they can put up solar photo voltaic power plants, sell the electricity they produce at prices under Rs 9.40, and still make money.
Compare this with the quotes of the previous round (Batch-I) and the point becomes clear. Last time around, the lowest tariff was Rs 10.90 and that tariff kicked up a huge debate on whether the developers were foolhardy and if they actually hoped to get funding from banks.
What is worthy of note is that the prices quoted in this round are lower than the prices at which electricity is sometimes traded on the energy exchanges. And, solar has beaten diesel power squarely, though purely in terms of cost.
What happened in the meantime that the tariffs should fall so steeply? Presumably, it is the precipitous fall in the prices of solar modules — panels containing silicon cells that generate electricity when sunlight falls on them.
A year back, when the Batch I bidding was happening, solar modules were sold for $1.70 a watt. Now, there are companies that are offering the same at 90 cents. Due to advancements in technology, material use is coming down and efficiency levels – a measure of how much of sun's energy falling on the panel is converted into electricity – are on the rise.
A further fall in module prices is anticipated and solar power is very likely to get still cheaper.

Lowest rates at power generation bid

A bidding for power generation kindled hopes of generating solar energy worth at least Rs 4,000 crore. What’s more, it has triggered a fall in rates, according to an official associated with the development.

Aggression was the key word at the bidding process on Friday for the 350-Mw photovoltaics-based solar projects under the second batch of the first phase of the National Solar Mission. The result was encouraging: the lowest bid submitted (by Solar Director) was for Rs 7.94 per unit, while the highest (Green Infra) was Rs 9.39. This, when Rs 15 per unit is the Central Electricity Regulatory Commission’s approved price.

The bids were made before NTPC Vidyut Vyapar Nigam (NVVN), the power trading arm of National Thermal Power Corporation (which was nominated to handle the first phase too).

The developers would sell power to NVVN at this rate for the next 25 years. The government has targeted the selection of grid-connected solar PV projects up to 350 Mw under Batch-2 in 2011-12.

An NVVN official said nearly 400 bidders had submitted request for qualification. Of them, about 160 were shortlisted. They were the one’s who submitted their request for on Friday’s proposal (financial) bid, he told Business Standard.

The official said the fall of rates were largely due to the availability of highly efficient and cheaper technology.

Power analyst D Radhakrishna said NVVN must be saving around Rs 1 crore per hour over last year’s offer and around half of the tariff proposed. “States will now need to revisit the already approved tariff.”

Friday, December 2, 2011

Spot power rates zoom as coal stations face dwindling stocks

Rates go up Rs 5/unit in South, Rs 4 in the rest of the country

Coal shortage is beginning to reflect in the spot electricity rates, which have risen steadily to an average of around Rs 5 per unit in the Southern region and close to Rs 4 per unit in the rest of the country.

Tuesday's peak electricity rates on the IEX — the country's largest power exchange — were recorded at Rs 9 in the South and close to Rs 6 in the other parts of the country, as coal supplies to the sector, manifested in terms of the fuel stocks at key coal-fired stations, are slipping again after a mild recovery in the middle of last month.

Government estimates suggest a cumulative generation loss of over 5 billion units during the first seven months of the current fiscal. This was mainly on account of the inadequate availability of coal, which is beginning to show up in the steadily climbing spot power rates. Latest estimates released suggest that nine stations are left with a day's stock or less.Incidentally, the data for November 20 – the latest date for which the coal stock position has been made available – show that the coal stock position is the worst since the beginning of last month. While excessive rains in Coal India Ltd's coal fields and workers' strike at Singareni Collieries were largely responsible for triggering the recent coal shortage situation, law and order problems in the Central Coalfields Ltd and Mahanadi Coalfields Ltd, inadequate crushing capacity at mines and less transportation of coal from mines to railway sidings have aggravated the problem.

The worsening fuel position comes after a brief blip in the middle of last month, when coal stocks showed signs of recovering at power stations. This was at a time when the Coal Ministry had claimed that coal companies had been asked to step up despatches to major thermal stations.

According to the latest data, stations with less than a week's coal stock have risen to a record 52, up from 36 in the beginning of last month. Also, a total of 32 key thermal power stations in the country were operating with coal stocks of less than four days, out of the 86 major thermal stations monitored for their coal stock position.

The 52 stations that have less than a week's stock add up to a cumulative capacity of well over two-thirds of the country's total installed coal-fired capacity of 99,503 MW.

Thermal stations are normally expected to hold coal stocks of between 15 and 30 days, depending on the location of the project. While pithead stations are expected to hold stocks of 15 days or more, stations located away from the mine are expected to hold coal stocks for 21 to 30 days.

NTPC Ltd said it is ensuring that stocks are “comfortable” at its stations by juggling around fuel from various sources, including imported coal and fuel from several domestic coal fields. Estimates suggest that NTPC's Singrauli and Kahalgaon stations had stocks of about 7,000 tonnes each as on November 20, against a requirement of 31,600 tonnes and 52,300 tonnes respectively.

The 3,260-MW Vindhyachal station had extremely low stocks, with higher generation being cited as the key reason.

Two months on, Montek letter to PM on power crisis unanswered

The power sector is in distress and needs intervention by the government on an urgent basis, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said in a letter to Prime Minister Manmohan Singh more than two months ago, but there is no clarity yet on when Singh will take a call over the issue. The prime minister's proposed meet on the power sector has already been deferred over half a dozen times.

Ahluwalia's September 17 letter llisted eight issues in the power sector which need urgent resolution and would involve participation of state governments, central ministries and the Reserve Bank. What is more significant is that the exercise was undertaken by the deputy chairman at the PM’s behest. Singh has convened meeting more than half a dozen times to discuss power sector issues but every time it was canceled at the last moment. The last time, the meeting was scheduled on Monday.

Specifically, Ahluwalia has drawn Singh's attention to issues, such as falling coal availability to generating stations, absence of level playing field for plants using blended coal, viability of plants based on imported coal due to lack of provision for tariff revision, the growing risk of bank loans drying for setting up power plants as a fall-out of discoms' mounting losses. Montek has warned that private investors could turn away from the power sector if these issues are not resolved soon.

Following a recent directive from the Reserve Bank, banks have stopped lending to discoms. Now there is risk of banks turning wary of lending to power generation projects. Ahluwalia said: “Since banks' exposure to the distribution sector is part of the total exposure to the power sector, the expanded exposure to distribution will affect bank lending for setting up generation capacity. This is also sending signals to private producers that returns in this sector may not be good and this will force reconsideration of investment decisions.”

This problem has been brewing for some time but now it has reached a 'tipping point', with discoms' combined losses crossing R1.5 lakh crore. “Distribution companies must embark on a credible programme of reform. Some of the accumulated loss will still have to be written off, or drastically restructured, since even improved performance in future will not cover servicing the backlog on commercial terms. Such a programme will be credible only if its is endorsed by the state governments which will have to take some of the burden of the debt write-off.

“Since it will take some time to do that, some interim arrangement may be necessary for the rest of the current financial year, so banks do not choke credit suddenly. UP and Rajasthan have written to us this could be a problem,” Ahluwalia added.

“Banks are also under more intense scrutiny to protect the quality of their balance sheets. Many international investment banks have commented adversely on the quality of Indian bank balance sheets because of exposure to the power sector.”

The deputy chairman of the Plan Panel said: “These problems can only be resolved through coordinated action involving the ministry of power, the Planning Commission and also the RBI, which as the banking regulator, may have to engage in some regulatory forbearance.”

Ahluwalia has warned that overall power generation could get seriously impacted in coming months if coal supply issues are not sorted out soon. He has suggested that a review be undertaken to find out what are the factors holding back CIL from meeting coal production target.

'Nuclear energy remains a very attractive option'

Bernard Bigot, head of CEA, the atomic and alternative energy body for France, and also the head of the country’s Atomic Energy Commission, says nuclear power is a sensible option and safety a priority. Edited excerpts of a talk with Sanjay Jog:

The Fukushima accident has forced nuclear countries to review safety applications and carry out necessary modifications. What is your view on this?

We welcome this review. Nuclear safety is of utmost importance and we should always take into account the feedback experience to improve safety in the most efficient way. Various initiatives have been launched, at international and national levels. In the case of France, the French Safety Authority, ASN, have requested from the operators complementary safety assessments for all existing plants and facilities, as well as for those under construction. The ASN report will be made available to the public at the beginning of next year. The initial assessment from operators is already available to the public.

Germany, an importer of energy, has decided to remove nuclear power from its energy mix in the near future, while other countries have confirmed their intention to continue down the nuclear road. Has Fukushima impacted the nuclear renaissance?

Undoubtedly, Fukushima has slowed the construction pace of new plants. However, the context remains the same — soaring energy demand, depletion of natural resources, global warming. To face these growing challenges, nuclear energy remains a very attractive energy option, provided safety is the top priority, as reminded by the Fukushima accident.

AREVA (of France) is negotiating with Nuclear Power Corporation for supply of two evolutionary pressurised reactors (EPRs) of 1,650 Mw for the Jaitapur project. Critics are raising objections against EPR safety.

The EPR reactor, an AREVA product, is based on an evolutionary technology. It is derived from well tested and well proven technologies, namely the French N4 and German Konvoi reactors, which have been operating successfully for many years in France and Germany. The EPR is derived from these two reactor concepts, with enhanced safety measures, to integrate the feedback experience of the Three Misle Island and Chernobyl accidents. The EPR is the most advanced design as far as safety is concerned.

After Fukushima, AREVA has revisited the safety applications of EPRs as directed by the French regulator. What are the major modifications suggested and implemented by AREVA?

No major modification was suggested by the reviewers. The EPR was clearly conceived to avoid the occurrence of any accident. As a result, the EPR reactor contains state of the art safety measures. The French Safety Authority has asked for complementary safety assessments. This process is ongoing. We are awaiting the final results of these assessments, which should be known very soon, and we shall share these with the Indian authorities.

What is your view on the recently released civil nuclear liability rules by the Government of India?

We are planning to work within the framework of these rules. Nevertheless, we will have to wait for final version. We understand that they have to be placed before the Indian parliament.

What is the present status of the protocol signed between CEA and the Atomic Energy Commission of India in 2002?

The aim of the Protocol signed in 2002 between CEA and AEC, which was renewed in 2007 between CEA and Department of Atomic Energy, was to establish a structure for the coordination of our bilateral cooperation programs. After signing of the 2008 inter-governmental agreement, this memorandum of understanding was replaced by a framework agreement signed between CEA and DAE during the French president’s visit to India in 2010. The Joint Coordinated Committee set up by this agreement offers the possibility to review annually our cooperation, with the aim of giving it more impetus.

AP Transco to bring down transmission losses

AP Transco has outlined plans to bring down transmission losses further to 4.1 per cent and complete the construction of 36 extra high-tension (EHT) sub-stations of 220 kV and 132 kV capacities in the State by March.
This move is aimed at meeting the growing demand and providing better quality of power supply to consumers.
According to a statement from the AP Energy Coordination Cell, Andhra Pradesh Electricity Regulatory Commission (APERC) today approval the construction of five more EHT (132 kV) sub-stations with an outlay of Rs 95 crore.
This is part of AP Transco efforts to strengthen the transmission network over the next four years with an investment outlay of Rs 6,000 crore on the transmission network alone. The Discoms are planning to take up construction of 33/11 kV sub-stations.
Mr Ajay Jain, Chairman and Managing Director of AP Transco, said augmentation of power transformers in various EHT sub-stations should be completed within the scheduled period. The officials informed that capacity around 1,100 MVA out of targeted 2,000 MVA has been completed and the remaining will be implemented by March 2012.
A high-level meeting attended by officials resolved that the power utility has to continue its sustained efforts to reduce transmission losses to 4.1 per cent as targeted by APERC as against the present transmission losses of 4.18 per cent. Mr Jain said that AP Transco had the lowest transmission losses and is focussing on bringing it down further.
During October 2011, the State experienced highest power demand of 286 million units a day.

National Bio Energy Mission soon: Farooq

A National Bio Energy Mission is being developed to push sustainable development of the renewable energy sector, Mr Farooq Abdullah, Union Minister for New and Renewable Energy (MNRE), said here on Tuesday. He was addressing the Bio Energy summit organised by Confederation of Indian Industries (CII).
“Grid parity among States is not equal and connectivity to remote locations is a major issue. The Ministry wants industry to bring innovative new technologies that would empower rural areas,” he said.
Mr G.B. Pradhan, Secretary, MNRE, said the most critical aspect in promoting bio energy projects was the associated business model, which should be sustainable. Mr K Krishnan, Chairman, CII Task Force on Bio-Energy, pointed to hybrid solutions that combine bio energy with solar, wind and hydro as promising sustainable solutions.
The CII recommended rationalising the pricing of fuels and tariffs to reflect the economic cost of supply, reduce cross subsidies and flexibility to capture changing fuel prices in a competitive market.