Centre’s fixed cost discount could lower gencos return by this much

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Published: May 27, 2020 2:20 AM

Brokerage firm Jefferies had earlier pointed out that every 100 bps cut in regulated RoE implies about 4% impact on NTPC’s profit.

But due to the current crisis, discoms will have the leeway to pay the fixed charges in three equal interest-free instalments for power not used by them.But due to the current crisis, discoms will have the leeway to pay the fixed charges in three equal interest-free instalments for power not used by them.

If Central government’s thermal power plants offers a 25% discount on fixed cost of the power supplied during the lockdown period, their effective post-tax return on equity (RoE) in FY21 could drop to 12.6% from their regulated RoE of 15.5%, according to analysts at India Ratings.

In the wake of the coronavirus outbreak, the Union power ministry has advised CPSU utilities, including NTPC, to consider offering a one-time rebate of 20-25% on fixed charges to the state-owned power distribution companies (discoms).

NTPC’s annual fixed charges are in the tune of Rs 37,000 crore, which comprises interests on long-term and working capital loans, depreciation, operations and maintenance charges and RoE. NTPC’s fixed charges are calculated accounting for a base RoE at 15.5%, which comes to about Rs 8,600 crore annually.

Brokerage firm Jefferies had earlier pointed out that every 100 bps cut in regulated RoE implies about 4% impact on NTPC’s profit.

The government has also asked CPSE gencos to defer the recovery of fixed charges for contracted power which has not been procured by discoms during the lockdown period. Power plants are legally entitled to receive fixed costs for recovering capital expenses even though when buyers do not procure electricity from the units. But due to the current crisis, discoms will have the leeway to pay the fixed charges in three equal interest-free instalments for power not used by them.

India Ratings pointed that the Rs 90,000-crore loan announced by Union government to inject liquidity in the electricity sector as a part of the ‘Atmanirbhar Bharat’ package will be a positive for gencos as the fund will be used to reduce their dues from gencos.

Outstanding receivables of the gencos, which stood at Rs 93,066 crore at the end of March 2020, would be cleared. About 88% of these receivables were ‘overdues’ with payment default of 60 days or more.

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