CERC draft rules: NTPC dips over 11% amid tariff concerns

The new guidelines,would be applicable for five years starting April 2014.

Written by ENS Economic Bureau | New Delhi | Published: December 11, 2013 1:51 am

A new set of draft tariff guidelines for state-owned power utilities issued by the central power regulator,wherein some of the operational norms have been tightened and the financial incentives for achieving transmission and generation targets sharply pruned,led to a hammering of power sector stocks on Tuesday.

State-owned NTPC Ltd saw its shares tank over 11 per cent in the wake of concerns that the proposed electricity tariff regulation would hit the company badly.

The new guidelines,which would be applicable for five years starting April 2014,retains the assured return-on-equity (RoE) at 15.5 per cent,as is provided in the current norms. It,however,proposes a cut in incentives and savings (on both fuel cost and operations and maintenance),leading to a much lower effective RoE of around 16.7 per cent as against the 21.4 per cent allowed under the current norms. It needs to be noted that the final regulations could be different from the draft,as has been the trend in the past.

Responding to draft norms issued by the Central Electricity Regulatory Commission (CERC),NTPC called for the need to link the company’s generation incentives to the actual power produced instead of supply. The draft guidelines have proposed that the incentives given to the thermal power projects should be linked to both the PLF (plant load factor) and the PAF (plant availability factor),instead of just the PAF as is done currrently. “The PAF is the declared capacity or the total generation capacity of the plant,whereas PLF is the actual generation which is based on the demand,” NTPC chairman and managing director Arup Roy Choudhury said here.

The company has said that it will respond to the draft regulations. “This is a draft,the final guidelines will come around January after seeking comments from all the stakeholders and we are hopeful that the commission will not dis-incentivise or de-motivate the country’s largest power generating firm,” he said.

In response to the draft norms,NTPC’s stock crashed to Rs 135 in intra-day trade and finally ended 11.26 per cent down at Rs 136 on the BSE. The scrip was the top loser among the blue-chips on both Sensex and Nifty indices.

The proposal

* The guidelines proposes a cut in incentives and savings (on both fuel cost and O&M),leading to a lower effective RoE of around 16.7% as against the 21.4% allowed under the current norms

* NTPC’s stock crashed 11.9% to Rs 135 in intra-day trade and ended 11.26% down at Rs 136.

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