Chorus for hike in ROE in power sector increases

Trigger is uncertainties involved in the current slow down

The chorus for an increase in the return on equity (ROE) in the power sector is increasing, especially in the wake of the commencement of tariff block for 2014-19 from April 1.

The Central Electricity Regulatory Commission (CERC), during tariff block of 2009-14, had fixed the ROE of 15.50 per cent plus 0.5 per cent for timely competition.  The issue came up for discussion during several rounds of meetings held at the power ministry and central public undertakings and also at the CERC’s advisory committee.

The component of tariff comprises ROE, interest on loan capital, depreciation, interest on working capital and operation and maintenance expenses. Industry players said that the rise in ROE will help investors to build up sufficient internal accruals for capacity addition and to ensure better cash flow. They also argued that regulatory stability is the need of the hour and hoped that the upward revision in ROE will give a much needed impetus to the sector.

Ashok Khurana, director general, Association of Power Producers told Business Standard that the CERC advisory committee discussed the issue at its recent meeting. “There was unanimous opinion that this is not the time to tinker with ROE. In fact, all efforts should be made to revive investors’ interest in the power sector.” Khurana said looking at the environment, there is no appetite for investment in the power sector.

 

RN Nayak, chairman and managing director, PowerGrid Corporation said ROE is generally governed on interest rates especially G-Sec rates, SBI PLR rates and AAA corporate bond rate. ‘’Present interest rate is quite harsh than the interest rate prevalent during late 2008 and early 2009 before the commencement of previous tariff block of 2009-14. Thus there is no reason why ROE should be reduced in the coming tariff block of 2014-19. Infact, PowerGrid Corporation had requested the regulator to enhance the same,’’ he added.

 

RV Shahi, former power secretary said that investment in power sector in general should be made attractive.  He gave the example of the issues prevailing in the transmission sector. ‘’In case of transmission sector of late a number of uncertainties have crept in. Right of Way has become a real issue as a result of which gestation period has increased. Therefore, better rate of return due to idling of equity in increased period of gestation appears essential,’’ he noted.

 

PC Pankaj, chairman and managing director, North Eastern Electric Power Corporation made a strong case for maintaining the ROE in the current uncertain environment. ‘’As fixed during 2009-14, ROE for hydro should be fixed at 15.5% and for storage at 16%. It should not be reduced considering the huge investment required in the hydro power projects,’’ he added.

 

ABL Srivastava, director finance, NHPC also pleaded for rise in ROE for the power sector as a whole but insisted that additional ROE for hydro sector should be sanctioned considering the uncertainties involved during the project development. ‘’Being a green power such a incentive should be given for the hydro sector. Effectively during the course of time the tariff of hydro power projects will be low,’’ he said.

 

RP Singh, former CMD, PowerGrid Corporation said that the investors need to be induced in the power sector and especially in the transmission sector. ‘’ROE in the transmission sector should remain sustainable especially when the investors' interest is fading. ROE needs also to be linked with 98% line availability,’’ he added.