Cap on trading margins may be raised 75%

Cap on trading margins may be raised 75%

New Delhi: In what may provide a fillip to the nascent power trading market in the country, the Central Electricity Regulatory Commission (CERC), India’s apex power sector regulator, has proposed raising the cap on power trading margin substantially.

A draft notification posted by CERC on its website for public discussion has recommended raising the present cap by 3 paise to 7 paise on sales undertaken at a rate higher than Rs3 per unit of power. Since the average rate at which power is traded at the moment is Rs4 per unit, the proposed changes will affect most of the transactions.

The proposal will be discussed by various stakeholders. If implemented, it will benefit companies such as PTC India Ltd, India’s largest power trading company, and NTPC Vidyut Vyapar Nigam Ltd, among others.

The move comes at a time when the Supreme Court has reserved its judgement on the regulator’s earlier decision on the cap, dating back to January 2006, which is being contested by power trading firms. Trading had stagnated because of the cap of 4 paise per unit on trading margins stipulated by CERC.

“We have floated the draft. We will have a public hearing and then we will have a view. While there were historical reasons for putting the 4 paise cap, a study was done to review it," said Pramod Deo, chairman of CERC.

According to the draft notification, CERC has proposed that “the licensee shall not charge trading margin exceeding 1.5% of its sale price, subject to a maximum of 7 paise/kWh when the sale price exceeds Rs3/kWh."

Mint had reported on 10 February about the regulator’s decision to review the 4 paise a unit cap on power trading margins.

CERC had imposed this cap to check the prices of short-term power to prevent traders from making supernormal profits. India faces an electricity shortage of 12% during peak demand.

“It is a draft regulation for which comments have been invited by 10 November. We will give our comments," said Tantra Narayan Thakur, chairman and managing director of PTC India. “Unless and until the final regulations are approved, we cannot make any estimate on how this will improve our margins. Further, this case is sub judice in the Supreme Court."

PTC India, which has a 46% share in the power trading market, has tried to work around the lack of trading activity by diversifying into other areas such as importing coal and taking stakes in power projects, as reported by Mint on 18 April 2007 and 12 February 2007.

Though 42 power trading licences have been issued since 2004, only 13 of these actually traded in power in 2007-08, according to CERC.

“If this regulation is implemented, anyone who sells power at rates above Rs3 per unit will see a marginal increase in revenue," said a head of a power trading firm, who did not want to be identified.

Said Kuljit Singh, a partner at audit and consulting firm Ernst and Young: “It’s a good measure to promote trading firms. However, a lot of trading firms are bypassing the trading cap."

PTC’s shares soared 20.82% to Rs105.05 on the Bombay Stock Exchange on Wednesday, as the benchmark Sensex rose 1.20% to 17,231.11 points.