The Hindu Business Line : Following CERC directive

NATIONAL Thermal Power Corporation (NTPC), which supplies around 25 per cent of the country's power requirement, will begin supplying cheaper power, by around 15 paise per unit, following the Central Electricity Regulatory Commission's (CERC) order released today. NTPC sells power at an average price of around Rs 1.42 paise per unit.

It will take a hit of around Rs 300-400 crore or 10 per cent reduction in profitability on an annual basis following the regulator's order to reduce rate of return.

Other profit elements that have been reduced include the removal of development surcharge besides higher efficiency parameters.

The inter-State power regulator, the CERC, today reduced the rate of return on all cost-based power projects to 14 per cent return on equity. Further, the commission has advised that all future projects in generation, transmission and distribution be structured through a tariff-based competitive bidding process.

This norm will affect only the Central sector projects like that of NTPC since private projects have been set up only in the state sector which is governed by the state power regulator. Further, these private projects enjoy water-tight contracts and are insulated from reduction in returns.

Announcing the new tariff norms for a period of five years beginning April 1, 2004, the CERC said that "the return on equity shall be 14 per cent post tax across the board, and this shall be uniformly applicable to the Central power PSUs and the private producers."

The regulator has also brought in more stringent norms to implement the Availability Based Tariff (ABT), which governs inter-State power management and movement.

"CERC has decided that ABT would continue during the new tariff period. The Commission expects that the ABT mechanism would be taken to its logical conclusion and the state regulators would extend it to an intra-state level in the near future," the regulator said in his order.

In the case of hydel projects, the regulator has provided for higher incentives for older projects and lower returns for newer projects. This is aimed at improving the viability of the older stations.

Also, cost-based hydel projects will not enjoy interest during the construction period where the construction period exceeds the Central Electricity Authority (CEA) approved construction schedule.

In the case of thermal stations enjoying a cost-plus regime like in the case of NTPC, the older projects where the company has invested 50 per cent equity will now enjoy return only on 30 per cent equity, thereby paring the consumer tariff.