Tariff revision will help recover RoE: JSW Energy

NK Jain, vice-chairman, JSW Energy, says that he expect the Barner project to be a good project. He also says that the project cost per megawatt is much lower than other power plants, which are based on lignite in the same area and he expect the project be completed by the September. Once the project is completed he expects the final tariff to be determined by the end of this financial year.

Below is the edited transcript of his interview to CNBC-TV18. Q: Cost of Barner project has not been fully approved and there is no tariff revision, the project made loss last year. By when do you expect something on that front?
A: Currently, four units are running successfully in our Barmer Project; two units are already synchronized and ready, and the other two units would be ready in next three months. We expect the entire project to be completed by September.
Our project cost per megawatt is much lower than other power plants, which are based on lignite in the same area. So, there is no issue that we have to spend any money.
Normally, the regulators give the interim tariff and as and when the project is finally completed the entire project cost details are submitted to the regulator and on that basis they finalize the final tariff. We are confident that this will be a very good project. Q: By when do you expect clarity on tariffs?
A:  Once the project is completed by September end, we will submit our final cost details to the regulator. We expect final tariff to be determined by the end of this financial year. Q: When would you expect the Barmer project to meet costs and generate profits?
A: Tariff revisions will take place retrospectively. On a conservative accounting basis, unless the tariff is revised, we are not taking the reasonable expected tariff that we should get. Currently, we are booking on the basis of tariff given by the regulator. However, we are not even making any cash losses at this regulator tariff and we are able to recover most of our depreciation part. Currently, we are unable to recover return on equity which we are confident that we will recover once the tariff is revised by the regulator. It is only a matter of time. Q: What about MSEB or distribution company where you have not been able to get clearances for higher coal price that you have paid. What is the progress and will they allow you to pass on higher prices?
A: We have a merchant tariff and our project is based on imported coal. Other than Barmer project, we have our own captive coal mines. Ratnagiri and Vijayanagar project is based on imported coal-based power plants and therefore we are bidding on a short-term basis and supplying power on same basis. We don’t have anything to recover from anybody on account of coal prices. Q: We haven't seen too much of an off take at higher levels on merchant pricing. What is the average merchant price that you got in the last two months compared to the January-March quarter?
A: For the whole FY12-13, we are completely sold out as far as Vijaynagar is concerned, and the average tariff realisation is above Rs 4.6 per unit. Q: Thermal coal prices have declined a bit which is your raw material but the rupee has played a spoiled sport. According to your estimation what is the company factoring in, in terms of coal cost decline in this year as compared to last year?
A: The import duty on coal has reduced; there has been substantial reduction in international coal prices. However at the same time the rupee-dollar parity has been disturbed. So, overall the fuel prices have gone down and would be much lower than in previous year. Q: As per current spot rates how much do you think it will be lower as compared to last year?
A: On an average it should be 25-30 paisa lower compared to last year. Q: Today’s JP Morgan report says that if the Barmer approval comes through your FY13 will show you some growth, but beyond that there not much capex planned. What are your growth plans?
A: We have already lined out two projects one in Chhattisgarh where we are putting up 1320 megawatt power plant and second in Himachal Pradesh where a 240 megawatt hydro-based power plant will come up. We will be spending money for these two projects in this and next financial year. We are not going stop at 3140 megawatt capacity, which we will achieve in September 2012, we will quickly add 1500 more capacity.

Q: Going forward as your projects come on stream many analysts are factoring in lower interest. How the interest costs will pan out in FY13 compared to FY12 and how will be income and earnings growth in FY13?
A: Apart from Barmer project our other projects interest is at optimal level. There is not much scope to get that reduced as we already refunded most of the loans for our Vijaynagar and Ratnagiri through bonds placement.
As far as Barmer is concerned, we are expecting that refunding would be done and interest to go down by average of 1.5% per annum, however we will pass on the benefit to the government of Rajasthan, it will not add to our profitability. Q: As you have one PPA which makes you eligible to sign one of the FSAs at least with Coal India, haven’t you signed any FSA?
A: At present, we have not signed any FSA. Q: What is your earning or income guidance?
A: As far as income guidance is concerned, financial year 2012-2013 is a different year for many reasons as the capacity expansion is substantial and we will reach 20 billion units generation this year. On an average if we get 40-50 paisa then that would be a great amount.