Essar Power, the unlisted power subsidiary of the Essar group, has prepaid Rs 37 crore of debt to the Unit Trust of India (UTI).
The payment is against the non-convertible debentures that the UTI subscribed at an interest rate of 20 per cent.
The move is a part of the company's effort to reduce power tariff as interest costs are pass-through and can be recovered from the final customer.
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Essar Power runs a 515 mw combined cycle power plant at Hazira in Gujarat. It sells about 300 mw of this power to the Gujarat Electrcity Board and 200 mw to Essar Steel, a group company.
Prashant Ruia, director, Essar Power, said today: "The company has renegotiated its term loans and brought down interest rates by an average of 6 per cent from the original rate of 20 per cent contracted in 1994-95. These efforts have enabled the overall tariff to be brought down to Rs 3 per unit from Rs 4.55 per unit. Our aim is to reduce the total tariff to Rs 2.50 per unit and become one of the lowest-cost independent power producers in the country."
"We earlier raised funds at high cost due to the then prevailing high interest rated. We are now trying to reduce the rates. The reduced power tariff will translate into savings of about Rs 150 crore to Gujarat Electricity Board," added A K Srivastava, managing director of the company.
The company is renegotiating with banks and fianncial institutions to bring down interest rates further. "A majority have agreed," Ruia said, but declined to give details.
Meanwhile, Essar Power has switched over to gas for supplying 200 mw of power to Gujarat Electricity Board. The balance 100 mw will be supplied to the board using naphtha as fuel.
Srivastava said the firm was in a position to supply 300 mw of gas-based power, if required, but did not want the board to bear the burden of the take-or-pay clause, which is a feature of gas supply agreements.