Mar 05, 2013 12:06 PM IST | Source: CNBC-TV18

Budget Reactions: Duty hikes to up cost by 3-4 paise/unit, says JSW Energy

With the hike in basic custom and countervailing duty (CVD) on steam coal NK Jain, vice chairman, JSW Energy tells CNBC-TV18 that the cost of power generation will rise by nearly 3-4 paise/unit.

With the hike in basic custom and countervailing duty (CVD) on steam coal NK Jain, vice chairman, JSW Energy tells CNBC-TV18 that the cost of power generation will rise by nearly 3-4 paise/unit.

"We were importing coal on 0-1% duty earlier and currently we are paying two percent customs duty and CVD each," he added.

Finance Minister P Chidambaram in his Budget speech announced an increase in the basic customs duty on steam coal from present nil to two percent and CVD from one percent to two percent.

A reduction in the basic customs duty on bituminous coal from five percent to two percent and CVD from six percent to two percent was also announced.

The company is looking to pass on this rise in cost to consumers.

Below is the edited transcript of NK Jain’s interview with CNBC-TV18

Q: One of the key announcements you were looking at in the Budget was clarity on duties on both bituminous coal and steam coal. The final announcement looks rationalized but a bit negative for your company. How do you come out of it?

A: Up till now JSW Energy was importing coal on 0+1 percent duty and now the entire coal has come at 2+2 percent duty. So it is a negative for the whole power sector. The trouble with power sector is that as far as the other industries are concerned, while Countervailing Duty (CVD) is modvatable for power sector there is no Modvat.

For others it is only 2 percent and for power sector it is 4 percent duty. The cost of generation will go up. We will be affected to the extent of the merchant power that we are selling, because any other than merchant would be a pass-through.

Q: Could you elaborate on the quantum of impact as well by how much will the generation cost go up?

A: It would be about 3-4 paise per unit on the merchant power. We are not selling entire power as merchant sell. We have 3,140 MW capacity and out which 1,080 MW capacity at Rajasthan is fully pass-through.

We are not importing coal over there, so there is no tax whatsoever. Similarly at Ratnagiri we have four units of 300 MW each out of which 600 MW that is two units are on Power Purchase Agreement (PPA) wherein we will not be affected.

So 600 MW in Ratnagiri and 860 MW where the entire capacity is on a merchant basis will be affected. The effect would be about 3-4 paise per unit. We have requested our marketing chief to workout whether it is possible to pass on this to the customers and we feel it should be possible because it is 3-4 paise not much.

Q: There was not any major announcement which came in for the power sector, apart from saying the private-public partnership (PPP) framework with Coal India to boost coal volume, nothing was heard on the SEB restructuring, the coal price pooling, even the subset clause was just extended by one year versus industry expectations of a five-year increase, were you a tad disappointed by the Budget?

A: We have been asking for a couple of things. One is the health of the distribution companies (discoms), which is very bad. In order to improve the health of discoms, couple of things needs to be done; one is that the entire debt of discoms must be restructured as early as possible.
Secondly, the state governments must come forward and say that whatever concessional tariff discoms are giving to the customers, they must make good of it.

Thirdly, they should go on increasing the prices of the power every year so that they do not continue to make losses. The FM has said that discoms health will improve and guidelines are available. He has requested the state governments to come forward and do it, but we do not know when this would happen.

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For Coal India blending coal with the import and local coal will come as some relief, but it is like those people who are only using domestic coal, there the cost will go up and those who are using imported coal, there the cost will go down. So, it is a mixed feeling for generators.

The power sector was also looking for is standard document for bidding which government must come forward because unless the standard bidding documents are finalised, no further addition in the generating capacity by the private sector can take place because private sector now cannot come forward for generating capacity addition unless it is clear that the fuel prices are passed through and currently it is not. We are waiting for the standard bidding document to come forward.

Q: You have also recently commissioned another unit of your Barmer plant. By when will the entire plant come on-stream? It is one of your key projects.

A: I am happy to announce that Unit 8 had already been commissioned, so now we have 6 operating units. As promised another two units also will be put to use before the financial year closes. Thereafter all eight units of 135 MW each at Barmer would be in operation. So that is a happy situation.

Q: By how much will this increase your overall generation capacity and what levels are you targeting in terms of ramp up for the balance of FY13?

A: As far as the next one month is concerned, these two units would be commissioned. Then we can say that we will have a complete capacity of 3,140 MW operating at all the three locations. Next year we will have a full capacity of 3,140 MW for the whole year.

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