The Telegraph
Since 1st March, 1999
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Essar close to tariff triumph

Mumbai, Dec. 3: Essar Power Ltd is looking to be the country’s lowest independent power producer by reducing its tariffs to Rs 2.50 per unit, largely through a cost-cutting exercise.

The company has already brought down tariffs to Rs 3 per unit from Rs 4.55 per unit. Company officials said this was achieved after it switched from naphtha feed to natural gas, enabling huge savings. It also renegotiated its term loans successfully bringing down interest rates by an average 6 per cent from the original 20 per cent contracted in 1994-95.

Meanwhile, Essar Power today announced it has prepaid its non-convertible debentures (NCDs) to the Unit Trust of India ahead of schedule. It has raised Rs 37 crore in 1997 to finance the 515 MW combined cycle power plant at Hazira and the interest on these NCDs is 20 per cent.

“The company spearheaded the task of obtaining exemption from excise duty on naphtha purchases that enabled reduction of variable charges by 18 per cent. It also was able to obtain exemption of sales tax on naphtha in Gujarat resulting in a further reduction of about 18 per cent,” an official said.

He added that the strategic location of the power plant near ONGC’s terminal at Hazira enabled the company to source naphtha without incurring any transport costs. All these factors helped it attain the status of being one of the lowest cost producers among combined cycle power plants in Gujarat.

“Essar Power is the only IPP to have taken the initiative of reducing its tariff while most IPPs continue to pay interest at a high cost of 18 per cent to 20 per cent, a burden which is passed on to the cash-strapped state electricity boards,” the officials said.

With a project cost of Rs 2,200 crore, the company’s debt is put around Rs 1,200 crore. However, its current debt equity structure is at 1:40:1, as against 2.07:1 at the time of commissioning the plant, thus indicating the effects of reducing its cost of finance.

Essar Power has also drafted an ambitious plan of entering into power distribution in Gujarat after the sector is opened up to the private sector in the state. Plans have also been firmed up to double its capacity from the current 515 MW.

It has signed a three-year contract with Gujarat Gas Company for supply of 1 million cubic metres of gas per day at $ 3.45 per million British thermal units. The gas will be sourced from Cairn Energy’s Laxmi Field and transported to the power plant by GGCL.

Essar Power, which started commercial operations in 1997, has a 20-year power purchase agreement with Gujarat Electricity Board (GEB). While its average revenues range at Rs 800 crore annually, profits are put at around Rs 50 crore. The company, officials added, has stressed on reducing variable charges to GEB in the past few years.


Meanwhile, an Essar group director, which has a debt exposure of around Rs 7,000 crore, today said none of its six companies have been classified as “non performing assets” by financial institutions or banks as on March 2002, adds PTI.

“We are a Rs 17,000-crore group with a debt exposure of Rs 7,000 crore. Various questions raised by some members of Parliament were addressed by the Union finance minister himself who has that as on March 31, 2002, none of the Essar group companies are NPAs with the banking system,” group director Prashant Ruia said.

“Essar Power currently proposes to pre-pay all its loans to the FIs,” Ruia said.

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