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| Power firms devise new ways to mask higher input costs |
| Sudheer Pal Singh / New Delhi Aug 11, 2008, 00:11 IST |
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Aggressive bidding by private power utilities keen to tap the vast growth opportunity in electricity generation is the reason the quoted tariffs have not risen in proportion to the rise in input costs.
The competition has ensured that the tariffs that the companies say they will charge after the project comes onstream are closer to the generation costs even as the recent increase in prices of raw materials — used both for the main plant equipment and civil works like steel and cement — has led to a sharp rise in project costs.
The developers, however, try to avoid a possible hit on margins by quoting a higher variable component. This enables them to hike the tariff in case certain input costs rise. “With such cost pressures, they are forced to develop an idea of the probable price rise and factor that into the bids,” said an industry expert. A bid document has two charges — escalable and non-escalable. Escalable charges are variable and include employee and fuel costs.
The developers, while quoting the bids, try to include maximum items in the escalable category. Experts say the overall affect of this lowering of the quoted tariff will make electricity available at cheaper prices. “This lowering of the price range will benefit the ultimate buyer, the common man,” said a senior official of the Central Electricity Regulatory Commission (CERC).
He pointed at the prices quoted by successful bidders for the three ultra mega power projects (UMPPs) already awarded by the Union government.
Out of the 13 planned UMPPs, the government has awarded three — Sasan in Madhya Pradesh and Krishnapattnam in Andhra Pradesh to Reliance Power and Mundra in Gujarat to Tata Power.
Reliance won the Sasan project by quoting a bid of as low as Rs 1.19 per kilowatt hour (kwh). Other bids submitted by Tata Power, NTPC and JP Associates ranged between Rs1.41 and Rs 2.12. The Krishnapattnam power project was won by Reliance by quoting a price of Rs 2.33 per kwh. Tata Power’s bid for the Mundra project was Rs 2.26 per kwh.
The pressure on the developers to quote aggressively comes at a time when high inflation and the prevailing slowdown have caused a significant rise in prices of raw materials like steel and cement.
“Base metals like steel and aluminum are used heavily in main plant equipment,” said an industry expert. These constitute about 40 per cent of the overall cost of setting up a power plant. Civil works inputs like cement account for another 40 per cent. The remaining 20 per cent is contributed by control and instrumentation such as switchyards and cables.
The prices of hot rolled coils of steel, used in manufacturing power equipment, have increased about 54 per cent since the beginning of the current year from 26,000 per tonne to about Rs 40,000 per tonne.
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