Govt likely to modify captive power equity structure

May be made more stringent, renewable energy units fear this could mean higher costs

Rules for captive power generating units are likely to be made more stringent by the government. The industry’s worry, especially of renewable energy units, is that this could mean higher costs.
 
The draft of the proposed change is open for comment till November 1. The suggestion is on the equity structure of owners in such units. Most power producers own at least 26 per cent of the equity and consume at least 51 per cent of the power generated from a captive unit. The rest is sold to entities in other states. The structure, known as ‘group captive’, is to avoid the cross-subsidy charges levied on interstate sale.
 
The modification proposed is on the definition of ownership. Ownership in relation to a generating station or power plant set up by a company or any other body corporate shall mean the paid-up equity share capital with full rights, such as value, share of profit/dividends, capital appreciation, voting rights, transfer of shares, etc. In other cases, ownership shall mean proprietary interest and control over the generating station or power plant, go the proposed changes, in the draft rules.
 
“It has been decided to remove the ambiguity that the ownership should be in terms of value of capital along with the voting rights and not in terms of number of shares only. The same is being misused by issuing shares of small face value, which actually do not represent the monetary share of the capital of the plant,” said the draft.
 
Industry executives said equity structures with different face value of shares will no longer be tenable.

CAPTIVE AUDIENCE

• The proposal is made to avoid the misuse of rules in captive units by owners 
• Power generation could face double whammy of increasing cross-subsidy charges by states and restriction in captive structure