4. Fixed Charges

4.1 Capital Cost

The station comprises of 2 units of 210 MW each, the first unit was commissioned in September 1996 and the second unit in September 1997. The actual expenditure incurred for completion of the project was Rs. 1355.58 crores.

The details of funding the project cost are given in Table 16 below:

Table 16: Capital Cost – Funding

The majority of the Phase 1 of the project was financed by the State Government while about Rs.158 crores (11.67 % of the funding) was financed by PFC. The entire loan obtained from PFC has been repaid completely along with interest. The outstanding loan is from State Government only. The Petitioner has requested the State Government to reduce the interest rate in view of the lower interest rates provided by banks. Response from the State Government is still awaited.

 The Petitioner is also planning to extend (Phase 2) the existing generating project, by adding three new units of 210 MW each, the capital cost of which for the FY 2007-08 is estimated to be Rs.354 crores. This is the Phase 2 of the generating project which will financed by a mix of debt in the form of funds from PFC and equity in the form of share capital contribution from Government of Jharkhand. It is expected to procure about Rs.284 crores from PFC and the remaining from the Government of Jharkhand.

4.2 Elements of Fixed Costs

The fixed costs include:

·        Interest on Loan

·        Depreciation

·        O&M Costs

·        Interest on Working Capital

·        Return on Equity

·        Tax on Income

The details are submitted below for consideration of Honourable Commission

4.3 Interest on Loan

The loan outstanding as on 31.03.2007 is Rs.665.9 crores. As per the terms and conditions the State Government loan is repayable in 15 equal installments. But the Petitioner could not meet the repayment obligation due to insufficient funds on account of non-payment of electricity charges by the Jharkhand State Electricity Board (JSEB).

Table 17: Loan Outstanding and Interest Charges (Rs.Crores)

The Petitioner received Rs.8 crores from the Government of Jharkhand towards construction of MGR system in 2006-07. The total loan outstanding as on 31.03.2007 is therefore Rs.665.9 crores and interest payable on loan is Rs. 86.71 crores. The Petitioner’s inability to repay loan is due to non-recovery of dues from JSEB. Therefore the Petitioner requests the Honourable Commission to approve the interest charges for 2007-08.

Table 18: Loan Outstanding and Interest Charges for FY’07 (Rs.Crores)

4.4 Depreciation

The Petitioner has calculated the depreciation on its fixed assets on historical capital cost of the asset. Depreciation is calculated annually as per the straight line method as per rates of depreciation prescribed in the schedule attached at Appendix-II of the JSERC (Terms and Conditions for Determination of Thermal Generation Tariff) Regulations, 2004, and depreciation cost has been arrived at accordingly

Table 19: Depreciation (Rs. Lakhs)

            * Depreciation applied only to newly purchased assets

As per the JSERC regulations, the residual life of an asset is considered as 10% and depreciation is allowed upto a maximum of 90% of the historical capital cost of the asset. Therefore, depreciation is not calculated on the assets where the cumulative depreciation has reached 90% of the historical cost of such assets. It is requested that the Honourable Commission may kindly approve the depreciation at Rs. 43.88 crores for the year 2007-08.

4.5 Operation and Maintenance (O&M) Expenses

The O&M expenses include expenditure incurred in the operation and maintenance of the generating station, including employee cost, repairs and maintenance, consumption of stores and spares, water charges, ash disposal, pollution control cess, insurance and other administrative and general expenses of the Petitioner corporate office at Ranchi. The maintenance expenditure has increased substantially due to the age of the plant and numerous outages experienced. In the previous tariff order for FY 2005-06 the Honourable Commission had approved the normative O&M expenses as per the JSERC (Terms and Conditions for Determination of Thermal Generation Tariff) Regulations,

2004 for plants set prior to 01.04.2004 that is 2.5% of the capital cost escalated at 6% per annum from the year of commissioning. The actual O&M expenditure for FY 2006-07 is estimated at Rs.86.26 crores. Using the normative approach, the O&M expenditure for the year 2007-08 will come to only Rs.65.36 whereas due to major breakdown maintenance and replacement expenditure in Unit I due to tripping of its turbine resulting in severe damage of blades, the Petitioner has projected an O&M expenditure of Rs.142.40 crores out of which approximately Rs.25-30 crores would be utilized in overhauling and repair and maintenance of Unit I. Unit I is expected to be under maintenance during FY 2007-08 since major works would be required to be undertaken. The Petitioner therefore requests the Honourable Commission to take consideration of the unit breakdown and accordingly make provision for O&M expenditure of Rs.142.40 crores for 2007-08.
 

Table 20: Proposed O&M Expenses

 The major components of the O&M expenses have been explained below:

a) Employee cost: The actual employee cost for FY 2006-07 was Rs.23.96 crores and for FY 2005-06 was Rs. 16.82 crores. The employee cost increases continuously on account of inflation, increment in salaries and wages, honorarium/incentives and increased demand for trained manpower on account of increased development in infrastructure sectors. For the year 2007-08 the employee cost is proposed at Rs. 27.90 crores.

b) Repairs and Maintenance (R&M): The Petitioner has to carry out regular repairs and maintenance of its generating plant to ensure maximum generation by optimum utilization of generating assets. The Petitioner undertakes preventive maintenance activities for all critical assets in addition to breakdown maintenance. The R&M expenses have been projected considering the past trends and anticipated repairs and maintenance. TVNL proposed Rs.2 crores for the FY 2005-06 as the R&M costs while the actual R&M cost was more than Rs.7.7 crores largely due to the R&M of P.H.Area (civil). The actual R&M costs in the year 2006-07 are estimated to be around Rs.3.11 crores on account of civil works in the non-residential buildings and power house road and drains. The budget estimate of the Petitioner for FY 2007-08 is Rs.1.73 crores. Other maintenance expenditure like preventive and general maintenance and store incidentals accounted for about Rs.17.75 crores in FY 2006-07 and are projected to be Rs.22.80 crores in FY 2007-08. The Petitioner therefore requests the Honourable Commission to approve Rs.24.54 crores inclusive of R&M expenditure and other maintenance expenditures to keep its plant running since Unit I of the plant is undergoing major overhauling

c) Administrative and General (A&G) Expenses: A&G expenditure represents cost of general administration such as rent, rates, taxes, legal expenses, professional fees, conveyance and traveling expenses, printing and stationery, bank charges, etc. The Petitioner had proposed an 8% increase in A&G expenses in FY 2005-06 over the expenses of 2004-05 while the actual growth was about 23.6%. In FY 2006-07 the A&G expenses were estimated to be Rs. Rs.7.31 crores against Rs.7.51 crores in FY 2005-06. The Petitioner proposes Rs.8.57 crores as A&G expenses for the year 2007-08.

d) Capital Maintenance: The Petitioner had incurred Rs. 86.82 crores towards capital maintenance during the last 5 years period, that is 2002-03 to 2006-07, including towards spares. These charges are being treated as deferred revenue expenses and proposed to be charged to revenue account in 5 annual installments. The year wise details of capital maintenance expenses and the amounts proposed to be charged to revenue account are detailed in the table below:

 Table 21: Year wise Capital Maintenance Expenditure (Rs. Lakhs)

The amount proposed to be charged during 2007-08 is Rs.25.79 crores.

e) Ash Disposal: Huge quantities of ash are piled up at the project site. TVNL has incurred an estimated cost of Rs.5.59 crores towards disposal of ash during the year 2006-07. For the year 2007-08 the Petitioner has projected expenditure of Rs.8 crores for disposal of ash from ash ponds, as it is essential to dispose off the piled up ash. 

f) Interest on Working Capital: In accordance with clause (v) of Regulation 21 of the JSERC (Terms and Conditions for Determination of Thermal Generation Tariff) Regulations, 2004, working capital in case of coal based fired generation stations shall cover:

·    Cost of coal for 1½ months for pithead generating stations and 2 months for non-pithead generating stations, corresponding to the target availability

·    One month stock of secondary fuel oil

·    O&M expenses for 1 month

·    Maintenance spares @ 1% of plant and equipment cost as on 01.04.2004 or the date of commercial operation, whichever is later; and

·    Receivables equivalent to 2 months of fixed and variable charges for sale of    electricity calculated on target availability

As per the regulations, the rate of interest on working capital shall be on a normative basis and shall be equal to the short-term Prime Lending Rate of State Bank of India as on 1st April of the year for which the tariff is determined.

The interest on working capital worked out to Rs.16.87 crores for the year 2006-07 and it is estimated at Rs.15.19 crores for the year 2007-08 as detailed in the Table 22 below:

Table 22: Interest on Working Capital (Rs. Lakhs)

4.6 Return on Equity

The capital cost of the TTPS (Phase I) comprising 2 units of 210MW each is Rs.1355.58 crores and the equity is only Rs.100 crores much less than the normative debt-equity ratio of 70:30 for the purpose of determination of tariff. The Petitioner has submitted a proposal to the State Government to raise the present equity of Rs.100 crores to Rs.1100

crores by converting the outstanding loan of Rs.608.90 crores and part of the accumulated interest of Rs.949.52 crores into equity. However no decision has been communicated by the Government to the Petitioner till now.

Petitioner shall intimate the Honourable Commission when such a decision is communicated by the State Government to the Petitioner. For now the Petitioner in accordance with Honourable Commission’s decision in Tariff Order for FY 2005-06, seeks return on equity of Rs.14 crores at a rate of return of 14% on equity for FY 2007-08.

Table 23: Return on Equity (Rs.Crores)

4.7 Income Tax

There is no assessable income for Income tax purpose and hence no tax on income is proposed for the year 2007-08.

4.8 Elements of Fixed Costs

The fixed costs for the year 2007-08 are summarized below:

Table 24: Summary of Fixed Costs (Rs.Crores)

The proposed fixed charges of Rs.302.18 crores and expected generation of 1679 MUs would result in a fixed tariff charge of Rs.1.80/kWh. The Petitioner requests the Honourable Commission to kindly approve this.