JSW Energy big gainer from sops to power firms

JSW Energy is set to benefit from removal of tax on imported coal in the Union Budget as it sells half its power production on merchant basis.

However, many other power producers which are required to pass cost gains to consumers are not so lucky.

The finance minister abolished the 5% custom duty and 2.5% countervailing duty on imported coal to help the ailing domestic power sector.

This move may also lead to reduction in power tariff for several end-consumers.

Half the production from JSW Energy’s 1,200 mw Ratnagiri and 860 mwVijayanagar plants which consume imported coal is sold on merchant basis, or under short-term contracts.

“This decision is a significant development for JSW Energy as we will save around 18 paise per megawatt,” said a senior company official.

On merchant basis, JSW Energy sells 650 mw from Ratnagiri and 790 mw from Vijayanagar, he said. The company is not required to pass the duty benefit to its consumers.

But players including Reliance Power, Tata Power and Adani Power which have around 80% of the power tied up on cost-plus basis or long-term power purchase agreement with state distribution companies would not benefit from the sop.

“These companies have to pass on the benefits to consumers, which in most cases are state power distributors,” said Monami Manna, senior analyst, Sunidhi Securities.

As per our calculations, state distribution companies would get a cost pass-through of around 10 paise per unit, she said.

Companies such as KSK Energy which run plants on linkaged coal and e-auction purchases also do not stand to gain.

“Only power companies running plants on imported coal and selling the energy produced on merchant basis are going benefit, said a senior analyst of a domestic brokerage.

Though most state distribution companies are running in red, they have to pass on this tax benefit to retail and industrial users, said an analyst with a domestic brokerage.

Ajoy Mehta, managing director, Mahavitaran, the Maharashtra power distribution company, said, “All taxes are direct pass-through and in the coming days the tax reduction will be pass on to end-consumers,” he said.

In fiscals 2010 and 2011,
Mahagenco, the state generation company, paid Rs55 crore and Rs44.27 crore as custom duty, respectively.

This year it is going to be Rs50-60 crore, which would be passed through by Mahavitaran, he said.