Merchant rate to remain strong on elections: JSW Energy

JSW Energy expects merchant power rates to remain strong in south market after the  government restructured tariff structure in various states. The JSW Group firm generates almost a third of its total sales from the merchant market and hence will be largely benefitted with this development.

In an interview with CNBC-TV18, Sanjay Sagar, joint managing director and CEO at JSW Energy said, “Revised rates are expected to remain strong in current fiscal because of scheduled elections in ensuing year.” He however, pointed out that realisations in the western region are coming under pressure. Read This: JSW Energy slips despite posting 49% jump in Q4 net Rising merchant power rates, especially in the south market is likely to boost JSW Energy’s FY14 financial performance. The rates in south India where JSW Energy sells merchant power are likely to be even higher than the rest of India because most of the south-based plants are gas-based and are grappling with an insufficient supply. The merchant rates are prevailing at around.4.50 per unit. A 10-paise hike in tariffs can improve the company’s profit significantly. Below is the verbatim transcript of his interview on CNBC-TV18 Q: Before we get talking about your numbers, I just want to focus on a bit of news that’s been out. Apparently, the Karnataka electricity regulatory commission has increased rates effectively from the May 1. I believe you do source to them. Could you quantify what the impact could be for a company like yours with the tariff hike that’s been announced by them at 20 paise per unit? A: The tariff hike announced by the Karnataka regulator would not impact a generation company per se because that is a tariff which the consumer pays to the distribution utilities and not what we get from Karnataka utilities. So there would be no direct impact other than an improvement in the health of the Karnataka utilities which would certainly impact the generation companies, which are supplying to Karnataka. As far as we are concerned, it is welcome news. Q: Would you expect to see any collateral impact on merchant realisations though? Any impact over there in terms of rates because those have been firm for you in the south? A: We expect rates to remain firm at least for sometime in the future because there are no significant generation capacities coming into the south and the transmission corridor remains congested. So, in those circumstances and on the coming election year, we expect the tariffs in the south to continue to remain firm for sometime. Q: Now that the Barmer capacity is on stream for you, what could you point to for the next financial year in terms of how much do you expect to see generation grow by? A: We would expect generation to cross about 21 billion units as against 18 billion that we did this year. Barmer should add about another three billion to generation capacities. _PAGEBREAK_ Q: Just to go back to the about realisations, what would be a reasonable target for realisations - a band that you think it could hold for the next few months? A: The realisation in the south, we expect them to continue to remain firm or maybe even improve because of the election year next year. However, the realisations in the western region are coming under a bit of pressure. As a result of that, we expect the realisations to remain anywhere around four quarters. Q: There was some concern around JSW Energy’s sharp increase in terms of better levels. Has that problem receded? What would you expect to see in the next few months in terms of whether the debtor levels would start coming down? A: The debtor levels have already come down significantly in April. We have collected a lot of money from our utilities. They were under little bit of pressure, especially the Maharashtra utility. They were under little bit of pressure over the last quarter. However, they have paid us in April and so the debtor levels have come down significantly. At least so far there are no real concerns on debtors. Q: You did have some money raising plans as well. You have an okay to do an offer for sale (OFS). How soon would JSW Energy be looking to hit the market to do that? A: The deadline for that is June 2 and we are already in first week of May. So you can expect us to do that anytime now.