The subsidiary is expected to pave the way for SAIL's proposed joint venture with a foreign or domestic power company in which the largest steelmaker of the country will have a 51 per cent stake.

The information memorandum given to the bidders for the power venture shows that the payments SAIL would have to make for power from its subsidiary will be much lower than the grid tariff. The subsidiary's tariff rate is comparable to SAIL's present tariff rate.

In 1999-2000, the first year of the 15-year power purchase agreement (PPA), the effective tariff at Rourkela Steel Plant is expected to be Rs 1.26 per unit against grid tariff of Rs 4 and SAIL's cost of Rs 1.63. The PPA will be signed based on expected balance of life of the plants.

For Durgapur Steel Plant, the tariff in the first year will be Rs 1.11 per unit against a gridtariff of Rs 2.60 and SAIL's cost of Rs 0.99. For Bokaro Steel Plant, the figures will be Rs 1.23, Rs 2.24 and Rs 1.54, respectively.

In the final year of the agreement, the effective tariff charged by the subsidiary for Rourkela will be Rs 2.19 per unit, for Durgapur Rs 1.87 and for Bokaro it will be Rs 1.97 against the corresponding grid tariffs of Rs 7.92, Rs 5.16 and Rs 4.43.

In the memorandum, grid tariffs have been derived from 1997-98 actual average tariff which will increase by five per cent per annum for subsequent years. The SAIL subsidiary's tariff includes 20 per cent post tax return on equity, interest on upfront realisation, dividend received from the subsidiary and interest on capital expenditure. Dividend has been taken as 90 per cent of the profits after taxes.

The total assets to be transferred by SAIL to its subsidiary are: 302mw plants I&II at Bokaro with estimated transfer price of Rs 500 crore, 120mw power plant at Durgapur with estimated transfer price of Rs 200 crore, and 120 mwpower plant and Central Power Training Institute at Rourkela (estimated transfer price Rs 210 crore).

The total book value of the assets at Rs 215 crore has been reassessed at Rs 910 crore. Asset transfer would require government approval.

Based on a debt-equity ratio of 2:1, the transfer price would be divided as follows -- Rs 303 crore equity with shares of face value of Rs 10 and Rs 607 crore as debt component as an intercorporate loan from SAIL.

SAIL's total upfront realisation from its subsidiary would be Rs 755.5 crore. The strategic partner SAIL is looking for would pay for equity contribution for 49 per cent of the shares. The SAIL subsidiary would also arrange for long-term loans from international and domestic institutions for payment to SAIL against its debt component.

SAIL chairman Arvind Pande has become the chairman of the subsidiary also. Other board members are SAIL's finance director VS Jain, Bokaro's managing director BK Singh, Durgapur's managing director SB Singh and Rourkela'smanaging director AK Singh.