The Hindu Business Line : `We expect earnings to stabilise in next five years'

THE Rs 2,800-crore Neyveli Lignite Corporation (NLC), for long confined to Neyveli, will soon acquire a pan-Indian image once its plans for projects in Rajasthan and Orissa come through successfully.

Driving the process is Mr S. Jayaraman, Chairman and Managing Director. In an interview with Business Line, Mr Jayaraman shared his views on NLC's performance in 2003-04 and its future plans. Excerpts:

Your company's performance last year has several features of interest. There was a Rs 336-crore `incentive to electricity boards' that you paid, and a Rs 182-crore increase in `other income'. Your operating profit margin (OPM) dropped to 47 per cent from 55 per cent. Would you comment on your company's performance last year with reference to these factors?

Yes. Last year, both lignite production and power generation were up. On the expenses side, the securitisation scheme provided for a payment of discounts for EBs that paid dues on time. That is why there is a jump in expenses.

Correspondingly, other income is also higher because of the interest received on the 8.5 per cent bonds. Really speaking, what we accounted for last year was two and a half year's interest, since October 2001. There were also some payments to be made in respect of the previous year, because some of the settlements relating to previous years were made last year. In the current year also we are doing reasonably well. We have a small problem in Mine-II. The lignite seams are dipping a bit and therefore the overburden is more. Therefore there is a slight reduction in production. That situation will persist this year. Probably next year onwards, we should be able to overcome it. There are also certain water bodies in the mine. We took the help of NGRI and took some satellite pictures and located the water body. But because the water flow is there, vehicle movement is affected. But this problem will be overcome in a month or so.

Why did your operating margin fall?

OPM was low because some of the CERC norms have had some impact. CERC has not fixed the final tariff for TPS-I expansion. They want actual payments completed; only then they will give a rate of return on that. But when you make a contract, there will be lot of issues, because of which we may have withheld some payments. CERC says `unless you pay we will not give (the tariffs).

We got only 65 per cent of the Rs 2.30 per unit we should have got. But this year, the issue will be settled and we will get our arrears too.

Further, there was some delay in fixing the price of lignite. There was a dispute over lignite pricing with the Tamil Nadu Electricity Board (TNEB). What is the price at which you accounted last year's supplies?

TPS-I was Rs 1.80 a unit, but the revised price may not be very different. For TPS-I Exp units we were getting 65 per cent of Rs 2.30. What are the CERC norms that will apply on new units from this year?

Not only on new units, all units will be on new norms. There are two elements. One is that the post-tax return of 16 per cent has been reduced to 14 per cent. Secondly, the normative PLF has been increased to 75 per cent from 72 per cent. That is why despite whatever benefits we will be getting there will not be a big jump in revenues.

But there will be some stability in earnings over the next five years?

Yes, there will be some stability. I also expect improvements from next year onwards, because the problems of Mine-II would have been solved. Production also will be stabilised. Today, although there is a very good demand for market for lignite, we are not able to supply. (NLC sells lignite to ST-CMS power plant, TNPL and some cement units in Tamil Nadu.)

You had a plan to put up a 125 MW unit that would use your surplus lignite. What happens to that plan now that you have no surplus lignite?

We have had a rethink on that. We had planned the unit on the calculation that we would operate our plants at a 77 per cent PLF, against the normative 72. But since the normative PLF has been raised to 75, we want to work at 85 per cent PLF. If we do that, we will not have any surplus lignite.

Would you securitise the interest receivables from the bonds you received under the securitisation scheme?

There may not be any need for that. After the lock-in period, disposal (of the bonds) is also possible. At that time we will evaluate whether to retain or sell the bonds. Some banks have given a proposal that we might retain the bonds and enter into a separate arrangement with them.What is your policy on lignite pricing for captive consumption?

Basically we follow the same norms as CERC prescribes for power — 16 per cent post tax return, now revised downwards to 14 per cent. We had arrived at certain norms in the past in discussion with electricity boards over a period of time, for calculating costs. We calculate the per unit fixed costs at 85 per cent capacity and add a 16 per cent post tax return.

What is TNEB's objection?

TNEB feels that we should take fixed costs at 100 per cent capacity. We don't accept that, because one must take the optimum level of operations. We have established that over a period of time, the mines have been generally performing around 80-85 per cent capacity. We are only following government of India's norms. They have been arguing against that we should reckon costs at 100 per cent capacity. This is in spite of the fact that our last power tariff, which was based on bipartite agreement, TNEB itself had signed for 85 per cent only. This is not something we have introduced new. But then, every buyer has a right to question the costs.

Do you use the same pricing philosophy while selling lignite to others?

Yes, we do. Today, whatever price we charge to TNEB, we charge others also. You see, as an integrated company my investments should fetch the same. Otherwise, why should I invest in the mines at all? What is the update on Jayamkondan and other projects?

We have not received any communication from the Government. TNEB wrote to us and we said we were interested, but we can take it up only when the Government gives the mine to us. The mine is the main thing.

On the other projects?

On the Tuticorin project, we've got clearance from the Government to form a new company. We are waiting for confirmation from TNEB.

Karnataka and Kerala will take 27 per cent of the power produced, the rest will go to TNEB.

In Orissa, we have identified land and water source. We had a discussion with the Government of Orissa. On the Rajasthan project, we'll get sanction either this month or next month. PIB has already approved. In Rajasthan we are now working for further expansion. We've committed to Rajasthan we'll be going up to 500 MW. There are other 2-3 deposits in Rajasthan. We are examining geologically.