The Hindu Business Line : Hopes to maintain profitability: NLC

The Director of Finance at Neyveli Lignite, Mr Prasanna Kumar, said profits were impacted by the lignite transfer pricing policy announced by the Ministry of Coal. The company hopes to maintain profitability at current levels, he said.

Excerpts from CNBC - TV18's exclusive interview with Mr Prasanna Kumar

Your numbers do not look good, is it because of the new lignite transfer pricing policy?

One of the main reasons is the lignite transfer policy, which has been announced by the Ministry of Coal. So far as the lignite transfer price is concerned, the regulator has no jurisdiction, the regulator had asked the Government to formulate some parameters and guidelines.

Those parameters and guidelines were announced on January 30 and we got it converted into figures and after considering those figures, we were down by Rs 636 crore for a period of 5 years.

So, it is not for one year as such, it is for a period of 5 years from 2001-02 till 2005-06. So we had to clean the entire operations and for five year as such it is Rs 636 crore.

We hope we will retain the same level of profitability as of this year and I do hope that there will not be any hiccups from next year onwards.

What is the change in pricing in quantitative terms and what will this do to your margins?

The Government also took similar parameters and we had adopted different parameters. One or two parameters went against us and a few parameters were in our favour. These parameters when it worked to the financial figures were against us and moreover apart from these parameters, the income tax, which we were recovering on sales, has to be considered.

If you take really the income tax part of it, it comes to around Rs 140-150 crore, out of Rs 636 crore, which we have shown by way of reduction in sales, Rs 136 crore is income tax. So Rs 500 crore in effect would be the reduction in transfer price for a period of five years.

We have calculated what would be our future profit scenario, it will be around Rs 1,000 crore until the new expansion projects come on stream like the Rajasthan and Neyveli Lignite mines and expansions, which are expected to generate power by the end of 2008 or beginning 2009.

Till such time we will be able to show the same amount of profit because we do not add capacity every year.

Is this only with retrospective effect or will these new pricing norms hurt you in the current year or after this as well?

It will not affect the current year. In the current year we will be able to show the same level of profitability, may be a little less. Not as less as we have shown here. We generate 15 billion units and a small variation of one paise in power tariff costs us Rs 75 crore for five years. That is very sensitive.