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

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.

financial express
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