| About Us - Registration/Login - Contact Us - Message Board - Glossary - Features - B-School - Legal - Biz-End - Orange-GTM - WAP |
| STOCK MARKETS | COMPANIES | SECTORS | ECONOMY | MUTUAL FUNDS | ONLINE TRADING | INVESTOR POINTS |
| |
|
| 'This site is a must read for investors ..' Forbes magazine | |
| India Infoline Sector Reports | Wed, 18-Feb-2004 16:50:28 IST (GMT+5:30) | |
| Power | ||
|
 |
Private Sector Licensees Licensees are predominantly private companies that generate and distribute electricity to urban areas. Prominent among these are Mumbai based licensees such as Tata Electric Companies (TEC), BEST and BSES, Calcutta-based CESC and Ahmedabad-based AEC. All new investments in power sector after 1956 were reserved for the state reserved and no new private entrepreneurs were allowed thereafter. While most of the then existing private entities were taken over by SEBs, a few efficient units catering to some large metropolises were allowed to function in the private sector. These private utilities are known as licensees as they are licensed by the respective SEBs to generate/distribute power in a designated area. Any shortfalls in a licensee’s own generation to meet the demand in its area is met through power purchases from respective SEBs. Power utilities in the rest of the country are state controlled. Regulation Of Licensees’ Earnings Licensee’s functioning and earnings are regulated by Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948. The basic principles are : Licensee should determine the tariff in a manner that they get a clear profit equal to reasonable rate (explained below) of return on capital base deployed within the licensed area. For this purpose, all income and expenditure are taken as actuals. There is virtually no reward or penalty for efficient or inefficient functioning.
The applicable bank rate for calculating reasonable return is the rate as at the beginning of that financial year. The licensee estimates the capital base, unit sales of electricity and all costs including interest, depreciation and tax. The costs comprise of demand charges designed to recover fixed costs, and an energy charge for actual fuel consumption. The reasonable return for this capital base is then calculated. The unit tariff for electricity is calculated in such a way that the total sales less costs equals reasonable return. Capital base does not include non-power related assets. Also regulated profits are calculated excluding income/expenditure on non-power related business and investments. Clear profit is accounted after creating statutory reserves, from post-tax profits, which act as a buffer to absorb abnormal variations. Any surplus in clear profit over and above the allowable reasonable return has to be refunded to consumer as rebate. Clear profit = After-tax profit - interest paid on unapproved loans - contribution for contingency reserves - contribution for power project reserve - contribution to debenture redemption and development reserves - other divisions income If the clear profit exceeds the reasonable return, then One-third of the excess (not more than 5% of the reasonable return) is retained by the licensee. One-third of the excess is transferred to the tariff and dividend control reserve. One-third of the excess is passed back to the consumers in the form of rebates in the next financial year. Tariff fixation is done, taking into account expected power offtake, fuel and other charges for generation/ distribution, power purchase costs, interest, depreciation, tax and statutory appropriations. However, the formula for tariff and profitability does not have any inherent safeguards for inefficiency. So to prevent monopoly position of licensees leading to exploitation of consumers, prior to tariffs revision licensees have to give a 60 days notice to the concerned SEB who reserves the right to examine the tariff and recommend revised rates. The present regulations make licensees earnings highly defensive and should rise at 15-20% pa in the normal course of operations. In the event of any major capital expenditure, growth in earnings for existing shareholders will depend on the modus operandi of raising the funds. Debt funding will have no impact on earnings. Premium equity, at a price higher than the book value, will accelerate earnings growth for the existing shareholders. Proposed Regulatory Changes The S.G. Coelho committee had recommended (which the previous government had accepted) that the return to licensees should be de-linked from the bank rate and an efficiency based mechanism be introduced for licensees. Under the present regulated system, there is no incentive for licensees to improve operational efficiencies. In contrast, the return formula for Independent Power Producers (IPPs) incorporates such an efficiency-based system. The de-linking of bank rate and moving to a less regulated system would be positive for power utility companies. |
|
|
| 5PAISA | PREMIUM CONTENT | ADVERTISE WITH US | FEEDBACK | DISCLAIMER | PRIVACY POLICY | JOBS | FAQS | SITE MAP | HELP |
