The recent slide in the value of the rupee against the dollar has resulted in the power tariffs agreed with the independent power producers (IPPs) going up by 15-30 per cent from what was initially agreed upon. This is even though most projects are still at the drawing board stage and are yet to commence generation.

Some of the earliest projects like the ones promoted by the Hindujas and Enron were signed when a dollar was quoting around Rs 31 while others were negotiated when it was quoting around Rs 35. Since then, the dollar has appreciated to around Rs 39.

Since power tariff is governed by two elements - the fixed and the variable costs.

A tariff hike, thus, would depend upon the type of fuel, its source and the then prevailing exchange rate, which would have a bearing on the extent of foreign debt as well as the foreign equity invested in the project.

The fixed costs include costs such as operation and maintainence, interests, depreciation, insurance, return on equity and taxes, while the variable costs include the fuel costs alone. Their total - calculated separately in the power tariff -are expressed in terms of Rs per unit (kwh).

The impact of the slide in the rupee against the dollar is two-fold:

the fixed costs increase depending on the foreign investment and debt and

the variable costs go up in case the fuel (liquid or coal) is imported.

A back of the book calculation for a coal based fast track project in Andhra Pradesh, shows that the fixed cost component worked out at Rs 1.43 per unit (when $1=Rs31). This has now gone up to Rs 2. 00 per unit as the dollar has appreciaited to around Rs 39.

In addition, there is a one time increase in the value of imported equipmentwhich increases the capital costs (to the tune of Rs 20 to 25 crore). This increase to is passed on to the consumer.