Monthly Archives: June 2012
Tata Power Delhi Distribution Ltd, a joint venture of Tata Power Company and the Delhi Government, has called for “debarring of Moser Baer Photo Voltaic Ltd for poor performance of solar projects.”
Tata Power DDL, (formerly North Delhi Power Ltd, in which Tata Power owns 51 per cent) has said in a letter to the Ministry of New and Renewable Energy, that it had awarded three solar projects to Moser Baer Photo Voltaic Ltd, a unit of the Moser Baer group.
Not up to industry standards
“The performance of the solar plants installed by them has not been up to the industry standards,” the letter says.
The letter cites a number of failures, including failure to adhere to contractual timelines leading to “tremendous delay” in commissioning of the projects, poor engineering leading to “faulty design and frequent change in layouts”, quality of workmanship and high system losses leading to actual electricity generation being much less than the guaranteed generation.”
Poor response, maintenance support
But what has irked Tata Power DDL is the “poor response to client’s complaints for rectification of faults” and the “weak operations and maintenance support”.
The letter has been copied to as many as 87 people connected to the power industry, including the officials of the Ministry of Power, Ministry of New and Renewable Energy and the various state electricity regulatory commissions.
“We had been following it up with them (Moser Baer) for over one year but there was no proper response,” an official of Tata Power DDL told Business Line today.
However, after the letter was issued (on May 7), there has been some action from Moser Baer side. If the action is satisfactory “we may withdraw the letter,” the official said.
When contacted by Business Line, a spokesperson of Moser Baer said, “We have reached an agreement on resolving the issue and the same is under execution.”‘
When Essar Energy reported a pre-tax loss of $1.14 billion ended March 31 this year, a figure that was dragged down by a Supreme Court ruling on payment of sales tax, it didn’t come as a surprise. This was the latest in a series of bad news for the group, which had listed Essar Energy in London and gained admission to the FTSE 100 index amid a lot of hype two years ago. However, the stock dropped out of FTSE 100 earlier this year after its price slumped by 70 per cent.
The bad news doesn’t end there. The total debt at Essar Energy, Essar Oil and Essar Steel stands at Rs 71,500 crore; and that of Essar Shipping and Essar Ports pushes the latter figure to Rs 79,676 crore — huge by any standards
Then, there’s market buzz that Essar Steel is operating at just over a third of its capacity, something the management has been denying. What’s worse is that three of the group’s top executives are embroiled in a case of cheating and conspiracy related to the documents filed to obtain mobile phone permits, the trial of which begins next month. The charges have been denied by Essar.
Essar, however, is unfazed by the ‘bad news’. Their reasoning is as follows: the three major companies of the group have made investments of Rs 99,000 crore in India in the last few years. With this phase now over, the group is now focusing on sweating those assets which the management thinks will result in a significant volume and margin growth.
L K Gupta, managing director, Essar Oil, says that the companies have already made their investments, the projects are up and running and from the current fiscal, the investors will reap the benefits of higher profits. The group expects revenues to double by 2015 from last year’s Rs 93,000 crore. “We have completed the capex. Now we have to do a lot of financial engineering to boost profitability,” says Gupta. And refinancing existing loans is part of the plan.
The average cost of the loan on Essar Oil is 11 per cent, which the company will now look to rework and lower by half. But given the global markets and international business concerns, isn’t this going to be difficult? According to Gupta, with net sales of over Rs 58,000 crore for 2011-12 set to skyrocket, thanks to the 20-million-tonne Vadinar refinery expansion, cash-flows will get a significant boost, and refinancing Rs 13,500 crore won’t be a concern.
Analysts agree. Vikas S Jain, Nilesh Banerjee and Siddharth Raizada of Goldman Sachs, in a report dated May 4 on Essar Oil, said, “We forecast the volume growth from the just-completed refinery expansion, combined with structural and cyclical improvements in gross refining margins to result in earnings growth significantly higher than Asian peers. We also expect strong operating cash-flows to strengthen Essar’s balance sheet.” The analysts estimate the company’s net profit (prior to exception items) to rise to Rs 1,677 crore in 2012-13 and further to Rs 2,637 crore in 2013-14, from Rs 111 crore last fiscal. Accordingly, they see the estimated net debt/equity to fall from 6:1 in FY12 to 2.55 in FY13 and further to 1.46 in FY14.
Says Essar’s Gupta: “In the next 18-24 months, we will definitely correct our balance sheet to a level where it should be. After the sales tax hit, the debt:equity is around 3.5:1. We expect it to come back to 2:1 in two years.”
While Essar Oil and its UK- and Kenya-based refineries form one large chunk of Essar Energy’s business, the other chunk comes from power, both of which are seen as growth drivers. In the power business, though, there are some hurdles to growth plans. For instance, its power plants in India at Hazira, Bhander, Vadinar are operating at lower load factors because of the high gas prices.
The unlisted arm of the Essar Group has spent Rs 37,500 crore in setting up a 10-million-tonne steel plant at Hazira, and pellet and beneficiation plants in the East coast. The debt of Essar Steel stands at Rs 22,000 crore and has been weighing heavily on its balance sheet. The company reported a loss of Rs 1,251 crore in 2011-12 and the outlook for the current year, too, looks mixed. Amit Agarwal, finance director of Essar Steel said, “First, in our business we have got a certain interest cost being carried on the new project. The gestation period was when the asset was being created. Now that it is created, it will start generating revenues.”
In 2011-12, interest costs jumped 68 per cent to Rs 2,235 crore on sales of Rs 16,056 crore. This debilitating cost is making the company look to greener pastures where there is a lowering of debt and rates. He said, “Now if we are looking at reducing debt and refinancing, it will only add to our profit margins.”
Last year has been a tough one for Essar Steel. Its ambitious 257-km slurry pipeline from Kirandul to Vizag to transfer iron ore to its pellet and beneficiation plant was shut down after a Maoist attack last year. Moreover, its Hazira plant was substantially impacted by the decrease in production at Reliance’s KG-D6 basin from which it gets its gas.
Apparently, the steel production at the Hazira complex is nowhere near full capacity. Industry insiders say these issues have forced the steel plant to run at a mere 30 per cent capacity, but the company is quick to refute the claim. Agarwal, without providing a number, said, “The plant is running at much higher capacity.”
The steel-making capacity has been increased from 4.6 to 10 million tonnes and the company aims to reach seven million tonnes by the end of the year. “Ramping up takes time and this year we will produce seven million tonne steel, at 70 per cent capacity utilisation,” he said.
The company reported consolidated sales of Rs 2,782 crore in 2011-12 a profit of Rs 36.83 crore. With a debt to equity ratio of 0.88:1, the debt of Rs 4,830 crore looks a bit stretched. Notably, the global shipping sector doesn’t look good even in the current year, with shipping rates failing to move up. The advantage Essar Shipping has over peers is its long-term contracts with group companies such as Essar Oil, Essar Power and Essar Steel. Currently, 60 per cent of its cargo comes from them, which makes it fairly immune to a situation where its ships would lay idle.
Three Essar Group companies, Essar Oil, Essar Ports and Essar Shipping, are also looking at share sales to comply with the new Sebi guidelines pertaining to promoter shareholdings in listed companies. According to SEBI, by June 2013, promoters will mandatorily have to bring down their shareholdings to 75 per cent or below. Besides, the group plans to sell stake in outsourcing company Aegis.
The Power Grid Corporation of India Limited a state-owned power transmission company has earmarked Rs 6,000 crore for expansion plans in Southern region, a senior official said today.
The southern region is one of the nine regions of power grid, spreading across the states of Andhra Pradesh and parts of Orissa, Maharashtra, Karnataka and Tamil Nadu.
According to V Sekhar, Executive Director (SRTS-I), currently seven new 765/400KV sub-stations are under construction at Nellore, Raichur, Kurnool, Hyderabad, Khammam, Vemagiri and Srikakulam and four out of these seven stations are the latest state of the art technology gas insulated sub stations.
Sekhar said the Region has 7,213 circuit kilometers (ckms) of 400 KV High Voltage Alternating Current (HVAC) and 1910 ckms of 500KV High Voltage Direct Current (HVDC) transmission lines in operation. The region has ten 400 KV HVAC substations with a transformation capacity of 6300 Megavolt Ampere.
“Transmission lines of over 4000 ckms are under construction spread over Andhra Pradesh and parts of Tamil Nadu, Karnataka and Maharashtra. We are spending Rs 6000 crore as part of the total expansion plans in the region,” Sekhar told PTI.
For the first time in South, a double circuit 765 KV high capacity transmission line is being constructed between Nellore and Kurnool which is capable of handling about 5000 MW. Together with Nellore – Gooty 400KV Double Circuit line, about 6000 MW is handled in the Krishnapatnam area, he added.
For strengthening the reliability of the power system in the Southern Region, 765 KV Double Circuit line between Kurnool and Tiruvalem (Tamil Nadu) and 400KV Double Circuit line between Gooty and Madhugiri (Karnataka) are under construction, he explained.
Sekhar said the Government of Andhra Pradesh would facilitate Power Grid to obtain necessary permissions, registrations and clearances from respective departments of the state.
“All these projects will be executed in the next two to two and half years schedule. Many of the projects are under execution. And some of the projects will start very shortly,” Sekhar said.
Meanwhile, the Power Grid in filing with BSE said the Board of Directors of the company have approved System strengthening-XVII in Southern region grid at an estimated cost of Rs 1508.74 crore with commissioning schedule of 33 months from the date of investment approval.
States to take 50% burden via bond issue
State electricity distribution utilities can expect a smooth road ahead with the Power Ministry finalising a loan restructuring programme spread over three-seven years.
To handle short-term loans of Rs 2 lakh crore in the books of these utilities, a two-phase agenda has been charted out to bring these distribution companies out of the red.
Nearly 75 per cent of the debt are with seven States — Madhya Pradesh, Rajasthan, Tamil Nadu, Uttar Pradesh, Haryana, Punjab and Andhra Pradesh. The proposal has been mooted by the Power Ministry after deliberating with the States and all electricity distribution utilities. The Ministry will seek approval from the Cabinet Committee on Economic Affairs (CCEA) soon.
“Half of these losses would be taken up by the respective States, which will issue long-term bonds in phases. For the remaining 50 per cent of the losses, distribution companies would get three-year moratorium on principal payment,” a Government official told Business Line.
“Government expects distribution companies to come out of red within three years and report cash surplus,” he added.
In the three-year first phase, the States would issue bonds based on their targets under the Fiscal Responsibility and Budget Management (FRBM) Act. “All bonds would not be issued in the first year. After facilitating the stimulus successfully over three years, 25 per cent of benefit would go to the respective States as incentives,” the official added.
At the same time, the distribution companies would get moratorium on principal payment.
They will take steps to reduce distribution losses and increase electricity tariff based on power purchase fluctuations. All these steps would be monitored by the Power Ministry.
In the second phase, the Government expects the distribution utilities to become cash-surplus. Thereby the remaining debt would be restructured for seven years.
Currently, the poor financial health of State electricity distribution companies is preventing them from buying enough power to meet demand. The high utility losses are because of low tariff hikes, rising burden of fuel prices, and non-receipt and delayed subsidy payment from States.
The aggregate annual loss of the utilities before subsidy increased at 33 per cent annually
Maharashtra State Power Generation Company (MahaGenco) says it would have to pay an extra Rs 201 crore yearly, due to the 10-15 per cent rise in supply rates from Western Coalfields Ltd (WCL, a Coal India arm.
The rise announced by WCL is for the entire western region. “The rise was made when pricing was shifted to a Gross Calorific Value (basis) from (the earlier) Useful Heat Value basis,” said a WCL official. “Due to the power ministry’s demand, the hike was rolled back.” The roll back had been reversed, he said
Mahagenco has an installed capacity of 6,980 Mw. A company official told Business Standard, “We spend nearly Rs 9,000 crore annually for procuring 38 million tonnes (from WCL and other CIL subsidiaries), of which coal linkage from WCL (meaning, the amount it is supposed to supply) is 20.8 mt. The outgo purely to WCL comes to Rs 3,800 crore.”
Warned MahaGenco managing director Subrat Ratho, “This rise will make the power tariff (rate) unviable, especially for industries in Maharashtra. The maximum impact will be on industrial consumers.” This is important, notes the MD, since industrial consumers cross-subsidise the rates charged for other categories of consumers. He said it would be difficult to give the exact rise likely, as a result, in rates.
The MahaGenco official said of the total coal linkage of 38.6 mt, it had got only 29 mt during 2011-12. Subsequently, MahaGenco contracted for 3.35 mt of imports, at the advice of the Central Electricity Authority. “Of the 20.8 mt linkage from WCL, we received 16 mt. During 2012-13, the linkage from WCL is also 20.8 mt. We have been rigorously pursuing our case for the supply of good quality coal without any interruption,” he said.
Welspun Group and Moser Baer India Ltd. (MBI) are among four companies that have signed agreements to build solar power projects in India’s central Madhya Pradesh state, an official said today.
Welspun and Alpha Infraprop Pvt. won by auction contracts to build 105 megawatts and 20 megawatts respectively, Rajesh Mehta, chief general manager of Madhya Pradesh Power Management Co., the state-run power trader that ran the bidding, said by telephone.
The contracts commit the companies to sell sun-based power to MP Power Management Co. for 25 years at a rate of 7,900 rupees ($140) a megawatt-hour for Alpha Infraprop and 8,050 rupees a megawatt-hour for Welspun.
Welspun, Moser Baer, and Acme Tele Power Ltd. (ATPL) have separately signed agreements with the state government to build 25 megawatts each of capacity, Mehta said. The government has agreed to pay those projects a tariff of 8,050 a megawatt-hour for their power, Mehta said.
The projects have until July 2013 to complete the first 25 megawatts plus another 1 1/2 months for each additional 25 megawatts of capacity, he said.
The airlines and power sectors have been creating problems for banks, says the Financial Stability Report released by the central bank. Banks have restructured much of their advances to the two sectors.
The two sectors account for over 23 per cent of the total restructured portfolio of banks.
The central bank does not see much improvement in the near future. Policy uncertainties and funding constraints are likely to pose challenges.
The fourth quarter ended March 31, 2012 was especially bad for banks.
In that quarter, banks restructured about 12 per cent of their total loans for the airline industry. This was the highest in over four quarters and almost three times the restructured loans for the airline industry in the quarter ended December 2011.
Only 10 banks, mostly in the public sector, accounted for 86 per cent of the total credit to the airline industry.
As on March 2012, nearly 75 per cent of the loans of banks, which have an exposure of above $10 billion (Rs 57,000 crore today) to the airline industry, were either impaired or restructured, the RBI report said.
Rising losses and debt levels in state electricity boards and shortage of fuel availability of power generation have raised questions on the ability of state electricity boards to repay loans.
Banks restructured about 11 per cent of its total loan portfolio for the power sector in the fourth quarter. In the quarter ended December 2011, banks had restructured about three per cent of their total loan portfolio for the power sector.
The rating agency, ICRA, has revised the long-term rating outlook of the BGR Energy Ltd from ‘stable’ to ‘negative’. The agency is concerned over the award of fresh project orders, land acquisition issues and timely collection of ‘retention money’ from the project awarders.
“The rating remains constrained by the significantly high working capital intensity in the business, execution risks in the on-going projets and vulnerability of profitability to any unfavourable fluctuations in raw material prices for projects that are ‘fixed price’ in nature.
It also notes that because business from private sector independent power producers is drying up, the competition for state-owned projects has intensified.
BGR Energy has large equity commitments towards its boiler, turbine-generator manufacturing joint ventures. True, the company’s exposure is likely to be limited to the equity contribution. But the debt raised by the joint ventures would be ‘project recourse’ in nature, which means that BGR Energy would have to provide need-based financial support to the JVs, especially in the initial years.
BGR Energy has emerged the lowest bidder in two tenders of NTPC for the supply of boilers and turbines, and is currently sitting on an order book worth Rs 16,000 crore. “However, these projects remain exposed to possible delays in the receipt of the ‘notice to proceed’, owing to issues such as delays in land acquisition, financial closure etc.” says ICRA.
Chennai-headquartered, Rs 3,447-crore BGR Energy Systems Ltd is into two lines of businesses—undertaking engineering, procurement and construction jobs for either ‘balance of plant’ part of a power project, or the entire power project, and the manufacture and supply of industrial products such as heat exchangers, pressure vessels and condensers.
The company achieved a post-tax profit of Rs 223.52 crore in 2011-12. Each share earned Rs 30.98. On the BSE today, the BGR Energy share closed at Rs 293.85, which was Rs 3.25 (or 1.09 per cent) lower than the previous close.
New bids for domestic coal-based power projects will depend on the source of the fuel. The Power Ministry on Thursday decided the standard bidding norms for power projects to be put out on auction under the 12th Five-Year Plan period. The new norms would be applicable prospectively to projects based on domestic coal and no changes have been made for units fired by imported fuel.
This has now opened up the route to bid for ultra mega power projects (UMPP) in Odisha, Tamil Nadu and Chhattisgarh.
“We have almost finalised the bidding document. We believe that most concerns related to availability of indigenous coal and price fluctuations have been addressed. The bidding document would be ready in a month after the draft is been vetted by legal team,” the Power Secretary, Mr P. Uma Shankar, told mediapersons.
According to the new provisions, norms would differ based on the source of coal. This means a power project based on linkage coal would be different from a unit attached to a captive mine. The new bidding norms would share the risk between developer and the procurer. The developer of the project would be able to mitigate any losses arising out of non-availability or fluctuations in the price of coal.
“Concerns of developers in terms of domestic fuel on availability and pricing have been taken care of. Competition would be on capacity charge that is fixed cost. They would bid for fixed station heat rate. At the same time, single variable cost would compare different bidders,” Mr Shankar explained.
However, the nodal Ministry decided to make no changes to norms for power units based on imported fuel. “We do not envisage any changes in projects based on imported coal. The risk is hedged in different compartments,” the Secretary added.
The new standard bidding documents are expected be ready for use by August. This will lead to awarding of the 4,000 MW UMPP at Bedabahal in Odisha that has been hanging fire since last year. This would be followed by awarding of two more UMPPs at Cheyyur in Tamil Nadu and Sarguja in Chhattisgarh
The Madhya Pradesh government has admitted it can manage only 2,500 Mw of power in two years against the projected 25,000 Mw expected few years ago.
The state would be able to add 1,859 Mw of power this year, but this would include central sector and other projects. “MP would add its own capacity of 1,200 Mw of which 600 Mw will be able from March 2013 from Shri Singaji Thermal power project,” said a government official.
Another extension project, the 500 Mw Satpura thermal project is expected to start functioning.
However, the state would get only 250 Mw from the project by December this year.
“MP is also expecting second unit of 3X 660 Seeput project of National Thermal Power Project this year. The second unit would share 94 Mw of power to state and a third unit that is expected to start by August 2012 would share an equal amount,” said the official.
Around 60 power generation companies that had queued up for investment to generate 25,000 Mw of power failed to take-off in absence of land allotment, water shortage and non-availability of coal, the official revealed.
Another project of the NTPC in Nagpur would start its second unit by December this year and it would share at least 250 Mw of power to state.
“A private power project promoted by Jaypee Associates in Bina (Sagar district) would start functioning this year and would supply 350 Mw of power by 2012-13; similarly, another private power company BLA power would start generating 45 Mw in Gadarwara (Narsinghpur district) this year and would supply 16 Mw to state.”
Further, non-conventional energy sources are expected to add 120 Mw of power to the state this year.