 CERC draft proposal will usher in grid discipline: JSPLPublished on Fri, Oct 16, 2009 at 10:13 | Source : CNBC-TV18 Updated at Fri, Oct 16, 2009 at 14:00 28989 Investors following Jindal Steel. Share this News with them.
Jindal Steel and Power may dilute 10% in the company's power business and sell its stake in FY10.
He expects to see some short-term power trading volume move to exchanges. He said CERC had asked for comments, and would take a decision later.
Did you know? - JSPL has been the biggest wealth creator since last Diwali. - JSPL up over 600% since last Diwali.
Here is a verbatim transcript of the exclusive interview with Sushil K Maroo on CNBC-TV18. Also watch the accompanying video. Q: Can you just explain to us this CERC draft notification and what it means for your company? A: The draft notification which has come from CERC for increasing the UI tariff from Rs 7.35 paisa to Rs 9.70 paisa. Primarily it is to bring discipline in the grid. SEBs sometimes overdraws and creates problems for the grid, so grid does not get endangered during the time. So CERC has increased the rate and has bring in some penalty rates also which are very high - double of this rate - if any SEB is drawing or utility is drawing more than the scheduled power to them when the frequency is less than 49.2 then they have to pay penalty - they have to pay a price for the power what they draw at double the rate of the highest rate. It means about Rs 18.15 per unit. This is primarily to bring discipline in the grid and to protect the grid from collapse that may happen and that has happened in the past but the impact of this will be there to some extent and the power excesses and to some extent for bilateral trade also. There will be impact because if there is a restriction on withdrawals from UI system then some of the SEBs who really need power - they'll go to the power exchanges for their daily requirement and to some extent if they did need power badly - they will go for bilateral markets. But the purpose of this notification is primarily to bring discipline in the grid. Q: How materially does it work for you? Is there a material impact on your earnings? A: It does not bring any impact on the earnings as such. The only thing this will also help in development of the other markets which are price based market like the power exchanges in the bilateral market. It will help for development of those markets. In fact some of the LERCs have already started telling utilities that if they are paying penalty price and buying from grid they will not allow that additional cost to be passed on to consumers. The whole objective is to protect the grid. But yes some price based markets will do well - some demand will shift to that area and to that extent there will be little firmness in the power exchanges and also in the bilateral market. Q: There is an expectation that CERC cap on merchant tariff will go now and it will move up from Rs 8 per unit to Rs 11 per unit. Is that happening and how significant could that be for you? A: Primarily these caps are decided by the power generation costs from the highest fuel. That's the logic behind it. It is naphtha and diesel - so naphtha and diesel prices are going up then accordingly the CERC adjusts the caps which was Rs 8 per unit in the past and CERC reviews these caps from time-to-time and they decide and take decision on this. We have to wait and watch what CERC decides on that. But normally for the market the price is determined by the demand and supply - those who are selling in the short-term market i.e. less than one-year market. It based on demand and supply. It is not primarily based on the cap - when the cap goes to Rs 11 per unit or Rs 8 per unit - those who are selling higher power, it does not really bring any kind of direct benefit immediately. Q: We understand that this is a draft proposal at this point. What are the chances that it goes through and how soon do you think it will get implemented if that does happen? A: Normally once the draft gets approved it gets implemented immediately and about the chance it depends on the working and thought process in the CERC when they call for public review and the comments from the public also go to them and they take a final decision in totality considering the cost of power generation. So we will have to wait and watch because it is not only CERC alone because it depends upon the fuel cost and so many other parameters. So we have to examine all the parameters. It is very difficult to comment. Q: Have you taken a call on the power business and what's the road forward to either demerge or to raise funds in that business? A: Our business is already in a separate company in Jindal Power Limited. So it is already there in that space in a separate company. In terms of listing we are already thinking about it - planning about it and it should happen in the near future. Q: Last we spoke you indicated that it was on the cards. So is it 10% in the power business - is that how much it will be and how soon will you take a final call? A: The minimum 10% in any case is required for the purpose of listing. So minimum 10% will have to look and that's what we are thinking about it. It is on the cards and we are working on it. Q: Will it happen before end of this calendar year? A: It is very difficult to comment on the time but it should happen shortly - may be in this financial year.
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