This refers to the editorial "Pooling tariffs" (June 25). The plea for a review of the Cabinet decision "to allow the increased cost of imported coal as a pass-through on a case-to-case basis" and the apprehension that this would enable power producers to make a "tidy profit" are both flawed. An investment of nothing less than Rs 5 lakh crore is required to create 78,000 Mw of capacity; and almost 90 per cent of this amount is leveraged. With the controlled rates of power, the scope to make profits is limited. Then again, what is the measure of this "tidy profit"? If pass-through is permitted, the rates would go up by 25 paise per unit, by your calculation. How much of this would go to the owner and to public shareholders? After all, the shareholders have not invested their money under a charitable scheme. The concern for the consumer is well taken, but it is not sound economics, rather a political gimmick. In any case, someone has to pick up the tab. Ultimately, it will again be the hapless consumer as a taxpayer.
Bids cannot be attributed the power of clairvoyance to foresee that exporting nations would keep the price stable. Bids based on fixed or fluctuating rates can have no relevance because in both cases, such price escalations would be inevitable depending on the price gyrations. The government policy of rejecting the "pool pricing" is not germane to the issue at hand. Moreover, the intransigence of Coal India Ltd (CIL) in signing fuel supply agreements with power producers, both in the public and private sectors, carries its own tale - no less its profit motive than anything else. If the Group of Ministers is unable to bring a public sector unit like CIL to see reason, would it be right to expect independent producers to fall in line and meekly accept a static price regime, irrespective of their making any "tidy profit" or not? Having witnessed the consequences of administered prices and subsidies doled out annually, to advocate such a course of action would be retrograde.
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Bids cannot be attributed the power of clairvoyance to foresee that exporting nations would keep the price stable. Bids based on fixed or fluctuating rates can have no relevance because in both cases, such price escalations would be inevitable depending on the price gyrations. The government policy of rejecting the "pool pricing" is not germane to the issue at hand. Moreover, the intransigence of Coal India Ltd (CIL) in signing fuel supply agreements with power producers, both in the public and private sectors, carries its own tale - no less its profit motive than anything else. If the Group of Ministers is unable to bring a public sector unit like CIL to see reason, would it be right to expect independent producers to fall in line and meekly accept a static price regime, irrespective of their making any "tidy profit" or not? Having witnessed the consequences of administered prices and subsidies doled out annually, to advocate such a course of action would be retrograde.
G R Saha Kolkata
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
All letters must have a postal address and telephone number