|Beware the PSU|
|Wednesday, 18 April 2012 02:08|
From Air India to Coal India, from MTNL to BSNL, government benevolence is what makes them run
At over 73 mn customers, believe it or not, Bharti Airtel has more than double the number of rural customers the state-owned BSNL has—it has 34 mn. Forget Bharti, Vodafone has 58 mn customers, Idea/Spice has 56 mn and RCom is just marginally behind BSNL at 33.4 mn vs BSNL’s 33.9 mn. Yet, when it comes to talking of the ‘extra’ spectrum telcos have, most focus on just Bharti and Vodafone, forgetting that both BSNL and MTNL have a lot more spectrum. Indeed both PSUs got their licenses for free while the private firms paid good money for them and despite not even paying annual license fees for years, BSNL is running huge losses—ironically, if the Supreme Court accepts the presidential reference to cancel all licenses not given through auctions, BSNL and MTNL’s will be the first to go!
With the government willing to spend R30,000 crore on reviving Air India and the Opposition keeping quiet, it suggests Air India is helping the aam aadmi fly, so it’s really public service we’re spending the money on. Not really, Air India’s market share at 17.4% is way below Jet’s 26% and Indigo’s 18.7%—till some months ago, even Kingfisher was higher, but that’s probably not true today. But the long and short of it is that we’re prepared to spend R30,000 crore on reviving Air India even while the consultants say there’s little chance of this happening (see ‘Good money after bad’, http//goo.gl/u9VRC), but consider any kind of bailout for Kingfisher a form of crony capitalism—and this is after Air India has a monopoly over lucrative bilateral flights!
Nothing, of course, shows up the complete failure of the public sector system more than the Right to Education where despite spending R34,000 crore on elementary education this year, the government still needs to coerce the private sector into reserving a fourth of its capacity for students the government wants admitted to school. So why are we silent about the losses incurred by/due to the public sector while remaining spectacularly focussed on the gains of the private sector?
Similarly, much of the attention, after the draft CAG report on the coal scam got leaked, has been focussed on how the 1,000 MW Jindal power plant in Chhattisgarh is making a killing—while the company has been selling electricity at over R4.5 per unit in some years, fuel costs have only been around 45 paise per unit thanks to the captive coal block it got. Given its capital costs of R1-1.5 per unit, this means it earned a return on equity of well over 100% in most years. In the case of Reliance, this column has argued in the past, allowing it to divert coal from the captive coal block that came along with the Sasan ultra mega power plant to its Chitrangi power plant (40% of Chitrangi’s coal will come from Sasan, the rest from other sources) will mean mega profits since it will sell power at R2.5-R3 to various state electricity boards.
Such focus is obviously important and will have been worth it if the government does finally move to a system of auctioning coal blocks instead of just handing them over to a favoured few. The ‘loss’ in Coalgate may not be the R10.7 lakh crore the draft CAG report estimates, but even if it is a fifth that (http://bit.ly/GXpfrJ) as FE’s editorial pointed out, the sum is a significant one.
But let’s look at it another way. Coal India’s average selling price for coal was R1,477 a tonne (based on net sales of R42,996 crore in the first 9 months of FY12 and the production of 291 million tonnes) in FY12 and R1,165 per tonne in FY11. Given that you generate roughly 2,000 units of power from each tonne of coal, this means the coal costs of power generated from Coal India coal should have been 60 paise per unit in FY11 and 75 paise in the first 9 months of FY12—and this is on the higher side since over 30% of Coal India sales are from e-auctions while NTPC plants don’t buy in e-auctions.
Yet, when you look at the variable costs (the costs of fuel, in this case coal) of NTPC, the figure you get is much higher, ranging from R1.8 per unit in the case of Vindhyachal I to R1.5 in the case of Rihand I—both these NTPC plants are supplied by Coal India’s NCL subsidiary. To put this number in perspective, the costs of the power Reliance will supply from its Sasan ultra-mega power plant will be R1.3 per unit, and this includes the capital costs of setting up the power plant! Of all the NTPC plants, the lowest variable costs, of 92 paise per unit of power, are for the 2,100 MW Korba plant-supplied coal by the SECL subsidiary of Coal India. (The table presents data for 20,460 MW out of NTPC’s 28,695 MW coal-based plants, so it’s quite representative and the variable/fixed charge calculations have been based on various tariff orders from various regulatory commissions the plants come under).
Obviously the huge difference needs to be accounted for. It’s either NTPC or Coal India’s inefficiency— in most cases, the plants are not that far from the coal mines to attribute the large difference to the high carrying costs of the Railways. Being vigilant about private sector scams is important, but doing so for the public sector is even more important, especially after the Air India case where the government has thought nothing about putting R30,000 crore of our money at risk.
|Last Updated ( Wednesday, 18 April 2012 06:59 )|