Monday, April 29, 2013

Man mohana bade Jhoothe!!

I was hearing this famous rendition by Lata ji and the other elite club. (Link to Youtube version)
I was suddenly awestruck at the Mukhda of the song
"Man mohana" bade Jhuthe..
It made me question, who was the song addressed to?
It is about "Man" .. the hindi equivalent of 'Heart".
But it stuck me again that .. it no longer is intended at "man"... 
I need to add "man mohana" .. which actually means dear heart.
And then it stuck me again that, even that is incorrect... it actually meant
"man mohan" a bade jhuthe...
Haa .. I see now, you get it..
"Manmohan"a bade jhuthe..
The rendition was developed 50 years ago protesting against, our Prime minister Mr. Manmohan singh's silence on coal gate scandal, 2G scandal, Hydro power allocation scandal, CBI file read/modify scandal, Land allocation scandal, Chopper procurement scandal, ... ok ok I will stop!!
What a song "man mohana" bade jhuthe .. OK, sorry for the typo
"manmohan a bade jhuthe"..
"Manmohan" means a person with pious and heautiful heart.
With all due respect to our dear PM, he has had great credentials and has been a great person..
For some reason I guess, he started loving his own self so much and has become very possessive about that beautiful heart of his "man mohana" that he would not let any one hear it
He has become very possessive of his own self that he would remain silent and let his heart not speak, lest, the "man" may run away with the words surrounding all the scandals!
He has transformed himself from "manmohan" to "maun mohan" .. 
As a matter of fact, the saint like person he is, he has decided that love and attraction to material things like Coal, 2G and also to crimes against woman are not great for the soul and has decided to protest against them and get rid of these worldly pleasures through silence and hence the maun!
So, hail the "maun" baba. He is the wisely and the one who can offer the true love i.e. "mohan"
Jai ho "maun mohan" baba ki!!

Nevertheless "Man mohana bade Jhuthe"

PS: I respect our PM for all the good deeds that he has done and for a great personality he is. I envy him for his academic acumen and can only dream about being the person he is (You know why I wrote this!!)

Friday, April 12, 2013

Price rise ... A shot in the hand!

In the previous article I mentioned that the Price rise is a shot in the arm and now I also want to justify that it is a shot in the hand.
Even while I was contemplating to file a PIL against this price rise, Haryana Govt. whose electricity distribution companies would be affected by this price rise has already challenged the verdict.
Just to brief the context again .. the Central Electricity Regulatory Commission, the authority to regulate the price of electricity, has allowed for a pass through of the additional cost of coal in the existing price of electricity. This is considered to a big shot in the arm and hence all the power generation companies' stocks also soared. (Click here for my previous article on this!)
If we look at it in detail, there is more to it than just a good news.
When Adani bid for the project, though the company had an option, they bid for a fixed tariff that is independent of the fuel prices (Incidentally all the others who lost the bid had opted for a flexible pricing option which is dependent on the price of the fuels!). Because of this fixed tariff, Adani was able to quote less and win the bid. So, the terms and conditions are set that Adani will not allow for any change in the price, for whatever be the change in the input fuel costs. Even in the terms & conditions of the contract, there was no clause which allowed for a price hike basis an exception input fuel cost increase.
Under these circumstances, why should the regulatory commission allow for a price hike. And moreover the name given fort his price hike is "Compensatory tariff". This changes the whole meaning of a competitive bidding mechanism.
Here on-wards I will always bid low, because I know there is going to be a compensatory tariff later which can be influenced. Hence, it can no longer be called a competitive bidding. It is an indirect way of co-ercing the regulatory or ensuring mis-management of funds for the benefit of the private parties. In simple terms it is bribe. I, as a power developer will approach the decision makers in the regulatory commission seeking compensatory tariff and in turn will compensate them in kind or through other means that cannot be tracked.
Incidentally, the regulatory commission gave the verdict one month before the chairman is about to retire. The case was pending for more than 2 years and in a sudden rush of events the verdict is given.
Haryana Govt. has for once immediately shot off a petition seeking cancellation of this order, which may stall this utter disregard to legal and regulatory norms.

Thursday, April 04, 2013

Price rise .. A shot in the arm!

Couple of days ago, one of my friends was asking me what would be the solution to the ailing power sector crisis in India. If we drew Porter's five forces model for the Power sector presently every force is dragging the sector down. Regulatory issues, Human resource issues, Lack of funds, lack of fuel, In adequate price and more to say the least. It looks like a vicious cycle with each leading to the other. So, what was one thing that could be done to revive the sector?
The answer was precisely given by the Central Electricity Regulatory Commission by allowing a pass through of increased fuel cost and agreeing to revise the power purchase agreement. No wonder, the stocks of the listed power generating companies soared by more than 5% in a single session, due to the hopes created by this judgement. Infact, this may be the single regulation that will have the maximum impact on the sector. But, how does it impact?
When a power generation company is about to set up the plant, they sign an agreement with the customer for the sale of electricity at a particular price. This agreement is more commonly called as "Power Purchase Agreement". This forms the basis for all the electricity bills that we pay. Typically in this contract, the electricity generation cost is planned and with a small escalation in prices, the power generation companies quote the price for the next 25 years. These values remain valid till the end of the 25 years!
Here comes the interesting part. In the cost of electricity generation, fuel cost alone constitutes more than 60%. So any undue increase in the fuel cost leads to a huge increase in the overall cost of electricity. Since, these undue increases cannot be allowed to, the power generation companies will be forced to sell or at times not sell electricity at all. While power generation companies do plan for price hikes, huge reliance on imported fuel supplies cannot be really planned for. This precisely happened with the coal that was being imported from Indonesia. Since, the amount of coal produced in India is not enough, many companies tied up with Indonesian coal companies for the supply of coal for long term supplies. When these tie-ups were formed Indonesian coal was cheap and hence all the companies bid aggressively for selling electricity. Couple of years ago, Indonesian Govt. increased the export duty on Coal significantly leading to almost an increase of 40-50% in the cost of coal being imported from Indonesia. This price hike was never expected in such a short duration and left every power generation company depending on Indonesian coal in quandary.  The other party of the Power Purchase agreement, which are typically the Govt. run electricity distribution companies did not agree to bear this additional cost. So, far the past 3 years power generation companies have been fighting battles to allow for this price hike.
After huge deliberations, the regulatory commission which oversees this price settlement passed a judgment to allow for a price hike. Even though the formula for price hike is not decided, the impact is significant considering the fact that this has been the biggest and one of the first of its kind in India. This is a shot in the arm for all the power generation  companies which were holding back from investing further and were reeling under losses of multiple crores per day.
But, what about the ability of the electricity distribution companies to cater to the increased price. Indian electricity distribution companies are the most loss making entities across the value chain of electricity. They are forced to buy the electricity and are not allowed to charge the consumers the rate at which they can survive. On top of that are the huge subsidies that are forced upon them by the active governments and also the impositions by politicians to ensure free power to their electorate etc. Last year Govt. had to bail out some of the electricity distribution companies from an inevitable bankruptcy. Also the ongoing protest by a leading politician protesting against the electricity price hike, would make any future hikes turbulent. Owing to all these, the distribution companies may be forced to take the biggest hit.
But, at least it is some movement forward and now the focus can be shifted to the distribution companies and hopefully some concrete solution will come soon.