Successive increases in power rates are likely to add Rs 700 crore to the revenue of RP-Sanjiv Goenka Group’s flagship company CESC.
Following a West Bengal State Electricity Regulatory Commission order in March, on an average, rates rose by 69 paise — from Rs 5.19 per kilowatt hour (kWh) to Rs 5.88 per kWh. In May, rates were again raised by an average of 15 paise to Rs 6.03 through a monthly variable cost adjustment formula, which factored in the rise in fuel prices and the freight and excise duty revision on power purchase.
Recently, the average electricity rate for industrial and household consumers in Delhi was raised from Rs 5.49 to Rs 6.63. “Though the May rate rise was introduced in the form of a variable, it is being continued,” said a senior CESC official. The increase in rates raised public ire, with various political parties protesting against the move.
CESC says in the last two years, coal prices have increased dramatically, and this had forced the company to approach the regulator for a rate rise.
“We use top quality B grade coal for our power plants, sourced primarily from Eastern Coalfields Limited. The price Coal India (CIL) charges for this grade saw a 121 per cent rise in the last two years — from Rs 2,819 per million tonne to Rs 6,217. However, average power prices saw a rise of only 27 per cent — from Rs 4.73 in 2010 to Rs 6.03 in May. This shows compared to input costs, the rise is not huge,” said another CESC official. The company claims on a yearly basis, it spends about Rs 500 crore to improve the distribution mechanism.
In 2011-12, the Kolkata-based firm’s net profit rose 14 per cent to Rs 554 crore, compared with Rs 488 crore in the previous financial year. Analysts, however, believe unless the company’s retail business sees a turnaround, the rise in profit and revenue would not help much. “Though CESC is performing well, posting a net profit of more than Rs 500 crore, since 2007, a major drawback for it is the loss-making retail business. Last year, losses from this stood at about Rs 200 crore, compared with the Rs 170-crore loss in the previous financial year….CESC claims the retail business would see a turnaround in six quarters, but its plans are not working out. Moreover, its coal costs are also on the higher side,” said V Srinivasan, a power sector analyst with Angel Broking. The firm’s fuel costs rose 23.3 per cent in 2011-12 to Rs 1,762 crore, compared with Rs 1,428 crore in 2010-11.
In the recent annual report, group Vice-Chairman Sanjiv Goenka raised concern over the coal price and hinted the coal supply promised through recent fuel supply agreements was unlikely.
CIL, however, alleged major power plants under the firm used A and B grade coal and, therefore, it shouldn’t complain about the import-parity-based pricing. “They have the only power stations in the country that have not switched to power grade coal — D or below. The inability to switch, which others did, cannot be the ground for CIL not realising better prices for high quality coal,” said a former CIL official. Though there was a considerable rise in power grade coal, this is yet to be applicable.
Meanwhile, the West Bengal State Electricity Distribution Company, too, raised power rates four times this year. Consumers of the distribution company saw a 36 per cent rise in rates — from Rs 4.27 per unit to Rs 5.82.
