Coal India chafes at ‘indiscriminate fuel commitments’ to power sector

During 2005-2009, the Centre took two major initiatives in the coal sector ostensibly to mitigate the energy crisis but only to leave coal and power sectors in a mess.

 

First, the Government divested the ‘national miner’, Coal India Ltd (CIL), of nearly 40 per cent of its reserves and handed over these assets to some 300 captive miners, mainly power producers like NTPC.

 

In a parallel move, the Standing Linkage Committee, chaired by the Coal Secretary, promised supplies for generating some 1,08,000 MW of power. The aim was to double the country’s generating capacity in the five-year period 2007-12.

 

CIL to pay penalty

 

The captive mining route remained a non-starter with the total coal production around 30 million tonnes in March 2012 against the targeted 200 mt.

 

Faced with the prospect of not meeting the supply commitments and penalties, CIL has been blaming the government for what the miner calls reckless distribution of linkages.

 

Of the proposed power projects, only 75 per cent, or 78,000 MW, requiring some 360 million tonnes of coal is under implementation and expected to be complete by March 2017. But that is still no relief for CIL.

 

If all these power stations come up on time, CIL will end up paying huge penalties for failing to honour the fuel supply pacts.

 

The miner will not be able to meet even the lower level of supplies it has committed to.

 

In a recent interview to Business Line, CIL Chairman S. Narsing Rao said the company was forced to commit supplies to new capacities sacrificing business and commercial interests.

 

The Government wants CIL to step up production by 41 per cent from 435 mt in 2011-12 to 615 mt in 2017. But Rao claims the target was set in complete disregard of the production potential.

 

If Rao is in a quandary, the power and the banking sectors face some real problems. And, they see the distribution of linkages at the root of the trouble.

 

‘No rationale’

 

“There was no rationale of issuing so many linkages,” says Ashok Khurana, a former bureaucrat and the Director-General of the Association of Power Producers (APP).

 

The Linkage Committee has to go by CIL’s advice. Records suggest that beginning 2006 CIL has been consistently warning the government about a looming supply shortfall.

 

But the government appears to have ignored them. The equation is quite simple.

 

In March 2009, CIL supplied 306 mt of coal for 60,000 MW capacities, at 90 per cent of the demand level. To cater to an additional 1,08,000 MW under the same terms, the company will have to come up with 450 mt more coal, which is double CIL’s production in 2012-13.

 

“Overestimating coal production by over 50 per cent is unacceptable,” says a senior official in a generation company on condition of anonymity.

 

The mess in power

 

While only the Coal Ministry can explain the rationale behind its decisions, some fly-by-night operators made quick bucks by selling project proposals, supported with fuel linkages, at a premium.

 

And, many of those who ended up investing in power plants, with 70 per cent bank finance, are now staring at huge losses.

 

Till date, approximately 40,000 MW capacities, awarded linkages, are on stream. But, many of them are underutilised due to lower supply of cheap fuel by CIL vis-à-vis lack of demand for costly imported coal based electricity.

 

The most affected are the private sector operators, who had set up projects through an equally impractical fixed tariff based bidding mechanism.

 

Another 7,000 MW generation capacities are languishing as they could not turn the captive assets into production.

 

And, on top of all there are approximately 4,500 MW capacities which came up without any fuel support — the unique example of a euphoria that gripped the nation in the last decade.

NTPC lines up new projects of 19,000 MW capacity

Country's largest power producing firm NTPC has lined up new projects of 19,000 MW capacity, nearly half of that would be commissioned by 2017.

 

"Around 9,000 MW capacity are likely to come up during the 12th plan period (2012-17) and some in the 13th plan period (2017-22)," according to a company source.

 

Ten coal-based thermal power projects totalling 13,290 MW are under construction. These include 2,400 MW Kudgi (Karnataka), 1,980 MW Barh-I (Bihar), 1,600 MW Lara-I (Chhattisgarh), 1,600 MW Gadarwara-I (Madhya Pradesh) and 1,320 MW Mouda-II (Maharashtra) thermal power projects.

 

NTPC is also executing over 5,000 MW capacity plants in joint venture with different firms in Bihar, Uttar Pradesh and Tamil Nadu.

 

This list also includes 800 MW Koldam-I hydro power project in Himachal Pradesh, 520 MW Tapovan Vishnugad-I and 171 MW Lata Tapovan-I in Uttarakhand.

 

NTPC is also developing many solar power projects, including a 50 MW Rajgarh Solar photo voltaic in Madhya Pradesh.

 

At present, NTPC generates 42,454 MW of electricity from various sources of energy. The company is also hopeful of commissioning its very first hydro power project Koldam in Himachal Pradesh in the next six months, sources said.

 

Earlier this month, the public sector firm tied up a loan facility for 55 million euro with German developmental financial institution KfW to part finance the capital expenditure of its Mouda thermal power project in Maharashtra

Power sector sees return of investors

The Piramal Group led by Ajay Piramal is scouting for investment opportunities in the Indian power sector, in a move that is as much an indication of the intentions of a conglomerate with money to invest as it is of growing investor interest in the business.

 

“The Piramal Group is looking at investment options and is evaluating opportunities. It has the resources and the appetite,” said a Mumbai-based power sector analyst who spoke on condition of anonymity.

A Piramal Group spokesperson, in an emailed response, said: “We evaluate opportunities across sectors including conventional power,” and added: “As a matter of business policy, we do not comment on specific opportunities.”

 

The power sector analyst cited above said several transactions were in play and cited investments made or interest evinced by foreign entities such as JPMorgan Chase and Co.’s asset management unit, Sembcorp Industries Ltd of Singapore and France’s GDF Suez SA, among others.

 

JPMorgan Asset Management invested $150 million in the Bhaskar Group’s Diliigent Power Pvt. Ltd in May 2013; Nagarjuna Construction Co. Ltd has been reported to be in talks with Sembcorp to sell a stake in a power plant; and Meenakshi Energy and Infrastructure Holdings Pvt. Ltd has agreed to sell a 74% stake in a 1,000 megawatts (MW) coal-fired power project to GDF Suez.

 

The debt-laden Jaypee Group is close to selling two of its three operating hydroelectric projects to a consortium led by Abu Dhabi National Energy Co. PJSC, known as TAQA, Mint reported on Tuesday.

The analyst explained that reasonable valuations have played a part in reviving investor interest in the power sector, as has the rupee’s depreciation, which has sweetened such deals for foreign buyers. The rupee has depreciated 11% against the dollar this year, making Indian assets cheaper for foreign buyers to acquire.

 

To be sure, valuations have become reasonable because many Indian promoters are looking for investors (if not to sell out altogether). Their problems include the domestic economic slowdown, high borrowing costs, delays in land acquisition and environmental clearances, and fuel shortages.

 

The Piramal Group itself is flush with funds after a 2010 deal in which it sold its pharmaceutical business to US drug maker Abbot Laboratories for Rs.17,000 crore.

 

Piramal Capital, which has a structured investments business unit, has invested Rs.550 crore in Navayuga Road Projects Pvt. Ltd, the road development arm of Navayuga Engineering Co. Ltd, and another Rs.500 crore in infrastructure company Green Infra Ltd. Piramal Capital picked up about a 10% stake in the Chennai-based vehicle loan company Shriram Transport Finance Co. Ltd for Rs.1,652 crore in May.

 

Analysts and experts say the evidence on hand does suggest a return of investor interest in the power business.

 

“There are some transactions that are happening. There are distressed assets; with valuations being depressed, it make sense,” former power secretary Anil Razdan said. “For the sector to fully recover, more financial closures need to be done for which the fuel issues need to be resolved. The projects need to run on full capacity to earn revenue.”

 

Power plants have been operating below production capacity because of fuel shortages. Things seems to be improving with the utilities tying up fuel supply agreements for 157 units totalling 71,000MW till November.

 

“Also, with the elections approaching, the demand for power will go up and to that extent there will be more power procurement by the state governments with state resources being deployed for the same,” Razdan added.

 

Indeed, trading in electricity saw a spike as the five states of Madhya Pradesh, Rajasthan, Chhattisgarh, Delhi and Mizoram, fearful of political backlash, bought additional power to avoid outages (and consequent voter outrage) in the November-December state assembly elections.

 

“We have to also keep in mind the fact that these asset sales are happening in projects that are operational or will soon start commercial operation. This mitigates the risk of land acquisition, approvals, clearances and project development. This appeals to foreign investors,” the power sector analyst mentioned in the first instance said.

 

Sambitosh Mohapatra, an executive director at PricewaterhouseCoopers Pvt. Ltd, said: “India is witnessing a revival of interest in investments, especially of international operators and investors from the Middle East, Europe and Japan, especially in the areas of renewables, conventional power generation (with advanced construction stage or operational) and electrical equipment.”

 

“It’s on the back of a positive outlook on the changing contours of the economy and expectations of improved governance. It also marks a phase of consolidation with the entry of large strategic operators bringing in synergies buying out small local players more interested in the EPC (engineering, procurement and construction) play,” Mohapatra added.

 

India’s ambitious bailout plan for state government-owned distribution companies announced in September last year is also expected to help improve the finances of state electricity boards and hence their ability to procure power.

 

“The scheme has been successfully implemented in Tamil Nadu, UP (Uttar Pradesh), Rajasthan and Haryana. FRPs (financial restructuring plans) have also been finalized for the states of Bihar, Jharkhand and Andhra Pradesh. Rationalization of tariffs has already been carried out by 24 SERCs (state electricity regulatory commissions)/JERCs (joint electricity regulatory commissions),” the power ministry said in a statement on Monday.

Time to wind up Damodar Valley Corp, asks NTPC chief

NTPC Chairman Arup Roy Choudhury, who took over the additional charge of Chairman and Managing Director of Damodar Valley Corp (DVC) last month, has asked the Union power ministry whether it is time to wind up the operations of the Kolkata-based power generator.

 

DVC is a joint venture between the West Bengal and Jharkhand governments and the Centre. It operates nine power plants, with a cumulative capacity of 5,857 megawatts (Mw).

 

Referring to the company’s operational issues, the NTPC chief said, “A total paradigm shift is required if DVC has to survive.”

 

Choudhury raised questions over the relevance of the philosophy behind the creation of DVC in current times. DVC was floated in 1943, under a special Act to utilise the flow of the Damodar river’s waters through West Bengal and Bihar, for power generation and irrigation projects.

 

The NTPC chairman blamed the company’s past management for ill-planned expansion without first securing land, water, environmental clearance, coal linkage and power purchase arrangements that led to stuck projects.

 

He notes DVC had current arrears of Rs 6,880 crore, mostly from Jharkhand; negative cash flow of Rs 110 crore a month; and no recovery of even fixed costs of 1,100-Mw capacity due to lack of power sale pacts. Choudhury also said the high tariff from new power plants would make them lose out in merit order dispatch – the cheapest power gets scheduled first.

 

Adani Power to de-merge transmission subsidiary

Adani Group’s power arm Adani Power Ltd (APL) will de-merge the transmission line business of the company. APL has convened a board meeting on December 28 to consider the demerger plan, the company informed in a stock exchange filing on Thursday.

 

“The board of directors meeting will be held on December 28, 2013, inter alia, to consider and approve demerger of transmission line business of the company and other incidental matters,” a company filing said.

 

According to sources, after the demerger from the standalone company Adani Power, the transmission line business will be made a separate subsidiary. Brokerage houses have maintained neutral view on the development for the Adani Power stocks. “It is positive in terms of it will remove the costs involved in the transmission line business from the financials of APL.

 

“However, the transmission line business has very small share to APL’s overall revenues. Hence, post the de-merger there doesn’t seem to be any major change in the numbers for APL,” said an analyst for a leading brokerage in Mumbai.

 

APL has set up 400 KV dedicated Mundra — Dehgam transmission line of 430 km — longest dedicated transmission line by a private sector player. It has also set up transmission lines from its power station in Tiroda, Maharashtra, to evacuate power to Warora and Aurangabad.

 

APL shares ended positive at Rs 39.60 up 3.4 per cent from its previous close on the BSE.

OPGC to reply to Coal ministry's notice in 3 weeks

Source: Business Standard, BS Reporter / Bhubaneswar, 27^th Dec, 2013

 

Expressing its confidence to retain the Manoharpur and dip side of Manoharpur coal blocks allocated to the state-owned utility, Odisha Power Generation Corporation (OPGC), the state government today said it will respond to the Coal ministry's notice asking it to explain the delay in development of these blocks within the stipulated 20 days.

 

“Prior approval of the Government of India is needed to mine coal which is pending for more than a year. We are not apprehending any de-allocation of the coal blocks. Since they (Ministry of Coal) have given us a show cause, we will reply before the deadline”, said secretary (energy) P K Jena.

 

On December 23, the Coal ministry had pulled up OPGC for slow progress in development of the coal blocks. On the basis of recommendation by the inter-ministerial group, the ministry sought explanation from the OPGC authorities.

 

“You are hereby called upon to explain, on each milestone separately to this ministry within a period of 20 days from the date of issue, the reasons for slow progress as well as the efforts made by you in development of the coal block, failing which it would be presumed that your company has no explanation to offer and action as appropriate would be taken”, S K Shahi, director, Coal ministry wrote to general manager (mines) of OPGC in the letter.

 

The ministry also asked OPGC to furnish a detailed status on the progress of the end-use plant for which the coal blocks were allocated.

 

The ministry had allocated the Manoharpur and dip side of Manoharpur coal blocks to OPGC on July 25, 2007 to cater to the capacity expansion of its Ib valley power station near Jharsuguda. OPGC runs a 420 Mw plant and was adding two 660 Mw super critical units. The expansion plan is being taken up at a cost of Rs  11,547 crore which also includes cost of other components like coal block development and dedicated rail corridor.

‘Underground mines hit Coal India profits’

Underground coal production is turning out to be a drag for the world's largest producer, Coal IndiaBSE -0.14 %. During 2012-13, under recoveries on coal produced from underground mines, which employs 8 per cent of its employees, is estimated at Rs12,830 crore, SES, a corporate governance research and advisory firm has inferred in its report prepared last week.

 

The research firm has concluded that if CILBSE -0.14 % produced only from open cast mines its production would have been lower by 10 per cent but its gross profit would have been higher by almost 50 per cent. Here, SES has, however, assumed that a large part of its manpower employed in underground mines is redeployed in other open cast mines. This, however, may not be practically possible as existing open cast mines may not be able to employ all employees of underground mines.

 

"It is a fact that production from underground mines is costlier due to various factors. Some mines are legacy mines which CIL inherited when the company was formed some 40-years ago. We do not differentiate between the coal produced from underground mines or open cast mines - coal is sold on the basis of the energy content in them," said a senior CIL director.

 

"However, we have also embarked on the concept of cost plus mines. Mines that are not viable economically are being taken up for these schemes where consumers pay a price that covers the cost of production and also includes certain margin. At present there are about 7 cost plus mines in Western Coalfileds, a CIL subsidiary. However, as we go deeper cost of production will keep rising and we intend to convert mines into cost plus also," he said. Productivity from under ground mines is very low compared to open cast ones. Capital cost per ton for underground mines is also much higher than open cast mine.

 

Productivity has been consistently lower across all subsidiaries of CIL. The difference in productivity per man-shift on average in 2012-13 was 1 per cent times during 2012-13. Underground mines had 1/1 per centth productivity per man shift compared to opencast mines.

 

Contribution from underground operations has pulled down average productivity of 11.48 ton /Man Shift to per cent.32 tons per man shift, a drop of more than per cent0 per cent.

 

According to estimates by the research firm, during 2012-13 cost of coal production from underground mines was Rs4,866 per tonne, while average cost of production was Rs1,121 per tonnes. During the year CIL produced 37.78 million tonnes from underground mines. However, average realisation for coal sold was about Rs1,470 per tonne. Hence, under recovery for underground mines is about Rs3,396 per tonne. Therefore, loss from underground mines is estimated at Rs12,830 crore.

 

Total gross profit for the year was Rs2 per cent,024 crore. However, if CIL did not produce coal from underground mines, the profit would have been Rs37,8 per cent4 crore, SES has estimated. Nevertheless, average cost of pro duction increased from Rs744 per tonne in 2010 to Rs1,121 in 2012-13, a per cent1 per cent rise. Whereas during the same period average realisation improved from Rs103 per cent per tonne to Rs1470 per tonne.

Buyers raise alarm over poor quality of Coal India supplies

A top executive of Coal India had once rued during an informal conversation that everyone seemed to take the state-run mining company as their "most favoured punching bag". He must be feeling vindicated with the Competition Commission of India, or CCI, having imposed a penalty of Rs 1,773 crore on the company for alleged abuse of its position as a monopoly supplier of coal.

 

The fine was imposed through a directive issued on December 9, after CCI found merit in Maharashtra State Power Generation Company (MahaGenco)'s accusation that Coal India was routinely supplying coal of poor quality.

 

The quality of coal is judged by measuring the gross calorific value, or the capacity of the coal to produce energy. Earlier, gross calorific value was determined by taking the average after testing samples at both the loading and unloading points. Under a new system, the gross calorific value is now measured only at the loading end and not at the destination. The Maharashtra power producer contends that there is serious erosion in the gross calorific value between these two points.

 

MahaGenco Managing Director Asheesh Sharma had earlier told Business Standard that in the old system, the slippage was only 20-40 per cent, but this had reached 100 per cent in the new system. And since, under the provisions of the fuel supply agreement, MahaGenco has no say on the matter, it had been forced to take the case to CCI.

 

Taking note of this concern, CCI has said in its order, "Coal India may also consider and examine the feasibility of sampling at the unloading-end in consultation with power producers besides adopting international best practices."

 

Coal India Chairman and Managing Director S Narsing Rao did not offer any comment on the verdict. However, the company which accounts for 80 per cent of the coal produced in the country is all set to challenge the order which, besides penalising the company, has also directed it to rework with various parties within 30 days to ensure "parity between old and new power producers as well as between private and public sector power producers".

 

Even earlier, the National Thermal Power Corporation, or NTPC, the largest customer of Coal India, had raised the issue of coal quality. Rao had then countered that it was the Railways that ferried the coal and Coal India couldn't take responsibility for the quality of coal after it had been dispatched from its collieries. "How can anyone ask Coal India to ensure quality at the unloading point, when transporting it is not its responsibility" he had asked.

 

The NTPC-Coal India quarrel was resolved after the two contenders agreed to put in place a mechanism of joint sampling as well as third-party sampling, but only at the loading point. Coal India was still not ready to take responsibility for the transit of coal.

 

The quality of coal supplied by the miner remains a concern. Experts say much of it has to do with the way mining is done in the country. Coal is produced through underground mining, opencast mining without drilling or blasting, or by opencast mining involving drilling and blasting. Former Coal India chairman and managing director Partha Bhattacharyya says: "Eighty-five per cent of the coal is produced from opencast mining with drilling and blasting. Unfortunately, contamination is bound to take place during blasting."

 

The immediate solution, Bhattacharyya suggests, lies in setting up washeries. "Coal has to be washed. This will improve the quality," he says. "The problem is that will increase the price and consumers should be ready to pay extra."

 

The truth is Coal India already has 17 washeries with a capacity of 39.40 million tonne per annum, or about 8 per cent of Coal India's production. There have been talks of setting up 20 more washeries with the capacity to improve the quality of 111 million tonne of raw coal, but this project had been delayed many times. Whenever asked about the washery project, Rao maintains that there is hardly any demand from consumers for washed coal. "Coal India is consumer-centric and not supplier-centric. It cannot do anything if there is no business proposition for it," he says. The additional cost of washing domestic coal would put its price close to that of international coal, and power producers would rather buy the latter.

 

Experts, therefore, says that the real solution lies perhaps not in the hands of Coal India, but with the policy makers because the CCI order against Coal India essentially highlights the need of a complete reform of the sector and the infusion of competitiveness.

 

Referring to measures like introduction of public-private partnership for mining or the setting up of a coal regulator, CCI's order says, "There is an imperative need to carry forward this reform momentum further by restructuring the sector by introducing more number of players so that it can reduce the dominance of any one player and can facilitate competition."

 

There is no denying that the economy is now ravenously short of coal to fire its power plants. Power generation capacity of about 50,000 MW that has come up over the over the last five years is either stranded or operating far below capacity because of lack of coal. The Planning Commission estimates that coal imports could go up to 185 million tonnes at the end of the 12th Five-Year Plan ( 2012-17) based on total coal demand of 980 MT and domestic supply of 795 MT. India's coal imports surged from 73 MT in 2009-10 to 135 MT in 2012-13. With one of the highest coal reserves globally of over 250 billion tonnes, the country perhaps deserves better.

Adani completes Vizag coal terminal ahead of schedule

Completing the Rs 400-crore steam coal terminal at Vishakhapatnam port eight months ahead of schedule, Adani Ports and SEZ Ltd (APSEZL), India’s largest commercial and private port operator, on Wednesday announced commencing its operations on the East Coast.

 

east coast entry

 

The terminal, having a capacity to handle 6.4 million tonnes (mt) of imported coal a year, marks the entry of Adani Ports on the East Coast.

 

The company has created infrastructure for handling cargo of up to 9 mt of coal at this terminal to be supplied to power plants in Andhra Pradesh, Odisha, Chhattisgarh and Maharashtra.

 

The Adani Vizag Coal Terminal, a subsidiary of APSEZL, had entered into a concession agreement with Vishakhapatnam Port Trust to set up a steam coal handling facility project in March 2011 with a completion deadline of August 2014.

 

coal handling

 

The facilities created at the port can handle steam coal volumes of up to 9 mt.

 

The Visakhapatnam port is strategic for coal imports to feed the local industries and power plants of the adjoining states, said Karan Adani, Executive Director, APSEZL.

 

The company also operates ports in Mundra, Hazira and Dahej, in Gujarat and is setting up coal handling facilities at Mormugao in Goa and at Kandla in Gujarat.

NTPC signs €55-million loan agreement with Germany’s KfW

State-run National Thermal Power Corporation (NTPC Ltd) has tied up a loan facility for €55 million with German developmental financial institution KfW to part finance the capital expenditure of its Mouda thermal power project in Maharashtra.

 

“An agreement to this effect was signed today by G.K. Sadhu, executive director (finance), on behalf of NTPC with KfW for €55 million (about Rs.467 crore),” NTPC said in a statement on Wednesday. The facility has a door-to-door maturity of 12 years, including availability period of four years.

The loan is on a standalone basis without sovereign guarantee, the statement said, adding that KfW had in the past provided financial support to NTPC’s renovation and modernization and emission reduction schemes.

 

The company on Wednesday also signed financing agreement with KfW-Germany to set up Solar Thermal and Photovoltaic Lab at NETRA (NTPC Energy Technology Research Alliance) under the Indo-German Research Cooperation through a grant of €5 million and matching contribution from NTPC.

These labs are being set up with assistance from German R&D institutions DLR, Cologne and ISE, Fraunhofer, it said.

NTPC to commission hydel project in Himachal Pradesh

State-run NTPC is likely to commission its first hydro power project, Koldam in Himachal Pradesh, in the next six months.

 

"The inauguration of filling up of the reservoir of the 800 MW capacity Koldam project may be done tomorrow and the entire process takes about 6 months or so," a source told PTI.

 

In about six-to-eight months, power production from the Koldam project will commence.

 

According to sources, the project which was started in 2003, will have a cost overrun of about 20%. The approved investment of the plant was Rs 4,527 crore.

 

It has been delayed mainly due to environment and geological hurdles. The project was earlier slated for commissioning in 2009.

 

The project will supply electricity to Delhi, Haryana, Punjab, Rajasthan, Uttar Pradesh, Himachal Pradesh, Jammu & Kashmir and Chandigarh.

 

Koldam has an installed capacity of 800 MW comprising four units of 200 MW each.

 

Himachal Pradesh, the home state of the hydel plant would get 12 per cent free power as royalty, 15 per cent at bus bar tariff and 2.75 per cent as the grid distribution share from the 800 MW project.

 

Bus bar tariff is the cost per kilowatt hour of producing electricity and includes the cost of capital, debt service, operation and maintenance, and fuel.

 

The company is also executing three more hydel plants -- Tapovan Vishnugad (520 MW) and Lata Tapovan (171 MW) in Uttarakhand and  and Singrauli Small Hydro Project (8 MW) in Uttar Pradesh.

 

At present, NTPC generates 42,454 MW of electricity and plans to add 14,000 MW in the current plan period (2012-17).

CIL deducts from power firms' payments to recover dues

In the wake of disappointing performance in the first two quarters of the year, Coal India (CIL) has finally initiated a process to recover its huge dues from power companies.

 

The state-owned miner has started deducting up to 25 per cent of the the upfront payments for new supplies by its consumers to recover the dues.

 

The Kolkata-based miner's effort has already started yielding result over the last couple of month, as the total dues has come down from a high of about Rs 13,000 crore in August to about Rs 11,000 crore now.

 

The company is planning to recover another Rs 6,000 crore by the end of the current financial year by this process.

 

“We are deducting about 15 to 25 per cent of the upfront payment made by these companies to adjust that against their earlier dues,” an official said.

 

“We hope that by March 2014, the total dues should come down to Rs 5,000 crore.”

 

Over 40 firms are to clear their dues with CIL, which currently stand at Rs 11,000 crore. Of this, state-run NTPC alone owes Rs 3,200 crore. Officials suggest dues over Rs 800 crore have been recovered from NTPC in the last two months.

 

Apart from NTPC, Damodar Valley Corporation and West Bengal Power Development Corporation  too currently owe over Rs 1,000 crore each to CIL, which too is being recovered over the last two months.

 

Incidentally, the matter was taken up at the ministry level recently. The coal ministry had earlier asked the power ministry to look into the matter of clearing the power companies’ dues with CIL.

 

Also recently, Union Coal Minister Sriprakash Jaiswal had taken up the matter with Finance Minister P Chidambaram.

 

Sources suggest that CIL has started recovering the dues by deducting from the upfront payments for new supplies only after the finance ministry indicated the mechanism to the coal ministry.

 

The dues kept mounting over the last one year as payments were held back in many cases by NTPC and other power companies on grounds of a dispute over the quality of coal supplied. In fact, CIL and NTPC had engaged into a public spat over quality issue, which had also came into the way of fuel supply agreements (FSA) between the two.

 

However, the issue was resolved as both agreed to a third party sampling. Here the quality of coal on the basis of gross caloric value is determined by a third party consultant. The third party sampling is binding on both the miner and consumer, and all payments are being made on the basis of the quality determination done in the third-party sampling. NTPC chairman Arup Roy Chowdhury too had recently indicated that the matter had been resolved and it would start clearing the dues to CIL.

 

CIL officials are very upbeat over the recovery of dues, which is expected to positively impact the bottom line in the coming quarters. It should be noted that the company had a dismal performance in the first two quarters of the current financial year.

 

CIL had posted its first quarterly profit decline after four quarters in the April-June period when it had reported a 16.52 per cent drop in consolidated net profit at Rs 3731.04 crore for the quarter ended June 30, 2013.

 

In the second quarter too CIL had posted a second straight decline in quarterly net profit, which was marginally down at Rs 3,052 crore from Rs 3,067 crore in the corresponding period last year.

Proposed tariff tweaks may dent NTPC’s profit

The NTPC stock tanked 11 per cent in reaction to the draft tariff regulations put up by the Central Electricity Regulatory Commission (CERC) for the FY15-19 period. Two major changes in the existing norms seem to have spooked the market.

 

Change in method

 

The first relates to a change in the method of calculation of power tariffs to be charged by the company.

 

NTPC operates on a cost-plus model. This allows recovery of costs such as fuel charges, interest on capital, operation and maintenance expenses, and provides an assured return on equity (ROE) for the company.

 

The existing norms allow the company an ROE of 15.5 per cent, on pre-tax basis. To arrive at this return, the applicable corporate tax rate is used.

 

CERC has now recommended a shift to a post-tax ROE with income tax recovery to be based on actual tax liability rather than on applicable tax rates.

 

Power companies enjoy a host of tax incentives. Because of this the actual tax liability is often lower than that calculated at the applicable tax rate. This could impact NTPC’s profit by around Rs 800 crore a year.

 

Change in parameter

 

Another crucial recommendation is the change in the parameter used for calculation of incentive (50 paise a kilo Watt hour) earned by power companies — from plant availability factor (capacity available) to plant load factor (capacity utilised).

 

Currently, to earn the incentive, companies such as NTPC have to only ensure that their plants are available for generation. But according to the draft regulations, the incentive is to be given only if power is actually produced. Power production could be lower than potential if demand for power is weak. A fall in demand from State distribution utilities (as seen in recent times), due to their poor finances, could cause slippage in the plant load factor.

 

It, however, needs to be seen by how much the final tariff regulations (to be notified sometime early next year) differ from the draft regulations. In the past, final regulations have deviated from those proposed in the draft.

India steps up power supply to Bangladesh

India has started supplying up to 500 MW of power on a daily basis to Bangladesh.According to a bilateral agreement, India had started selling 250 MW of electricity to the neighbouring nation from October 5. The supplies were stepped up after the transmission network on the Bangladeshi side was strengthened, said sources at PowerGird Corp of India Ltd.

 

Tariff

 

According to the bilateral agreement, India will supply up to 250 MW electricity every day from NTPC’s power plants at the Central Electricity Regulatory Commission (CERC)-determined domestic tariff, for 25 years. The CERC tariff, which is subject to be revised depending on the cost push, is now pegged at Rs 4.33 a unit (taka 5.5).

 

Bangladesh is free to import the residual 250 MW from the Indian open market. To start with, the neighbouring country has inked a short-term deal with an Indian power trading company to buy 250 MW a day (supplied by Bengal State Electricity Distribution Co) at Rs 5.11 a unit (taka 6. 5).

 

Increasing co-operation

 

NTPC and the Bangladesh Power Development Board have already entered into a joint venture agreement for Bangladesh India Friendship Power Co Pvt Ltd for setting up a 1,320-MW thermal power plant at Khulna, Bangladesh.

 

PowerGird has also expressed interest with the Bangladeshi authorities in executing a part of the transmission project to evacuate power from the joint venture generation facility.

Power tariffs may drop as norms for producers are tightened

Electricity rates may see a marginal drop if the draft regulations on power tariffs, issued by the Central Electricity Regulatory Commission (CERC), are approved. Back-of-the-envelope calculations show that the CERC proposal may bring down rates by 5 per cent. Currently, a consumer in Delhi pays about Rs 4 a unit.

 

But the CERC mechanism will have a negative impact on the revenues of power producers such as NTPC, NHPC, Tata Power and Lanco. In fact, the news created panic on Dalal Street and NTPC saw its market value eroded by more than Rs 14,000 crore. Shares of the country’s largest power producer dropped 11 per cent to close at Rs 136 on the BSE.

 

Shares of NHPC, PowerGrid, Tata Power, Lanco Infratech and SJVN also fell.

 

According to analysts, if the draft norms are implemented, NTPC’s revenue may drop by around 15 per cent, Power Grid’s by 8 per cent, NHPC’s by 6 per cent, and SJVN’s by 7 per cent.

 

The power companies would earn lower revenues because the CERC draft has changed some key parameters, including calculation of incentives based on plant load factor, heat value and tax benefits.

 

This time, the incentive structure has been linked to actual generation beyond the threshold level of 85 per cent. CERC has reduced the station heat rate from 2,425 kcal/kwh to 2,375 kcal/kwh. The lower the heat rate, the more efficient is the plant.

 

“We believe this is a negative for independent power producers such as NTPC, as plant load factor is subjected to demand fluctuations by State Electricity Boards (SEBs) and fuel supply variations,” said Elara Securities (India).

 

However, Arup Roy Choudhury, CMD of NTPC, maintained that there is “no need to panic”, as these are draft regulations and would be discussed before finalisation.

 

Choudhury said NTPC would take up these issues with CERC.

 

The plant availability factor proposed by CERC is the declared capacity or the total generation capacity of the plant, whereas plant load factor is the actual generation, which is based on demand, on which a producer has no control, he explained.

 

More tax

 

In addition, the draft regulations do not allow grossing up of taxes. Companies such as NTPC are allowed tax benefit on assets under Section 80 IA and, therefore, the effective tax rate is lower than the corporate tax rate. Henceforth, NTPC may have to shell out Rs 600-800 crore as an additional tax burden.

 

CERC reviews tariff regulations every five years. The existing regulations (2009-14) will expire on March 31. The draft norms have been put up for consideration. There is a public hearing on January 15, and a final notification is expected by March. The new tariffs that are approved will be applicable from April 1.

Investment in Capex plan Rs 555.80 cr so far, says energy minister

The government of Odisha has paid Rs 555.80 crore as of now for Capex programme, which is a power network upgradation plan floated by the state government in association with distribution companies (discoms).

 

"Till date, the Odisha government has released Rs 555.83 crore, out of which Rs 220.14 have been utilised by the end of November 2013," said Arun Kumar Sahu, minister of energy, in a reply to the state assembly.

 

The Capex programme was conceptualised in 2010-11 with an outlay of Rs 2,400 crore. Under this plan, the state government worked out a package to mop up the required expenditure through debt mode abandoning its earlier move of equity mode. The scheme had stipulated that while the state will organise Rs 1,200 crore including Rs 500 crore grant from 13th Finance Commission, the discoms will raise the rest. It paid Rs 205.00 crore in 2010-11, Rs 215.83 crore in 2011-12 and Rs 135.00 crore in 2012-13 for the upgradation plan, the minister said.

 

The plan has been non-performer because of delays in not providing matching shares by the discoms. As on December 2012, three discoms, Nesco, Wesco and Southco controlled by Reliance Infra had paid Rs 80 crore, against their dues of Rs 120 crore. The other discom in the state, Central Electricity Supply Utility (CESU), managed by Odisha Electricity Regulatory Commission (OERC), had provided its share for the period.

 

Sensing the failure of the Capex project due to poor financial health of the discoms, the state government this October, launched a Rs 2,600 crore scheme on its own to develop power network and installations of nearly 500 substations. This scheme will run in addition to Capex plan.

 

"Although private sector participation was allowed in electricity distribution way back in the year 1999 to achieve the objectives of technical up-gradation and infusion of necessary funds, the achievement is far from satisfactory. The financial health of discoms being poor, it has become imperative for the state government to invest in power distribution infrastructure in order to provide quality power to the people of Odisha," the government had said during the launch of the scheme.

 

Upgradation of power distribution infrastructure needed extra attention from the state government as Odisha currently has 588 substations in total with 193 - 33 kV sub-stations separated by a distance of more than 30 km, resulting in huge transmission losses. Besides, rising consumer base of the state, which has gone up by five times to 5 million within a span of 13 years, has necessitated the need for upgradation of power distribution infrastructure.

 

For 2013-14, the state government has sanctioned an amount of Rs 100 crore for setting up of new substations and laying cable lines. The funds will be released in small instalments within a span of three years.