Maharashtra-based industries stuck in cross-subsidy jeopardy

States like Gujarat, Haryana and Punjab have allowed their industrial customers to purchase power in the open market and tried to solve their power deficit problem to some extent. Maharashtra, on the other hand, continues to refuse open access permission to its industrial customers

While Maharashtra struggles to meet its retail customers' power requirements, it continues to refuse permission to industries willing to purchase power from the open markets. The State is in a soup, thanks to its own decision of zero cross-subsidy surcharge.

Power is the most critical input for most industries. This is why industries are ready to purchase power in the open market even at far higher rates. However, industries in Maharashtra are forced to access power from the State distribution utility, as they are not allowed to access the open power market.

The Maharashtra State Electricity Distribution Company Ltd (MAHADISCOM) has been refusing to grant open access permissions to a number of its industrial customers. "MAHAVITARAN (Maharashtra State Electricity Distribution Company Ltd) is opposing open access without cross subsidy surcharge," said Subrat Ratho, energy secretary, government of Maharashtra on being questioned why industries in Maharashtra cannot purchase power in the open market like in the States of Haryana, Punjab and Rajasthan.

For anybody to trade power in the open access (both sell and purchase), permission from the State Load Dispatch Centre (SLDC) is required. However, industrial customers of MAHADISCOM need permission from the distribution utility as well. MAHADISCOM, however, has been refusing to grant such permissions.

The zero cross-subsidy surcharge has become a major hiccup in this issue. Industries are the high-end customers of the State distribution utility who compensate for other customers like farmers and retail customers.

Ideally, when such customers access an alternate power supply source, they are expected to pay a cross-subsidy surcharge, whatever percentage is applicable in the respective State.

In Maharashtra's case, the cross-subsidy surcharge is nil. Hence, MAHADISCOM will suffer on these lines. This is the main reason for the its unwillingness in granting permissions.

Interestingly, States like Punjab, Gujarat, and Rajasthan have allowed their industrial customers to purchase power in the open market. All these States charge a certain amount of cross-subsidy surcharges for open access. For example, as on March 2009, Gujarat Electricity Regulatory Commission (GERC) has a cross-subsidy surcharge for open access at Rs0.51 per unit.

"Industrial customers from such States first turned to the open market during load-shedding hours. However, they now save a large amount by purchasing power when the rates are low or during off-peak hours," said an ex-employee from one of the power exchanges.

However, this situation may change with the new cross-subsidy surcharge policy draft pending with the Maharashtra Electricity Regulatory Commission (MERC). On the latest heard about the policy, MAHADISCOM is expected to submit its comments on the policy by the end of this month.

"No concrete decision has been taken on it so far. We are supposed to submit our comments by the end of this month," said S V Bapat, superintendent engineer, tariff regulator cell, MAHADISCOM. An email sent to VP Raja, chairman, MERC two days back remained unanswered till the time of writing this story.

The National Tariff Policy envisages the cross-subsidy surcharge to be reduced in a linear manner to a maximum of 20% of its opening level by the year 2010-11.


Developers have to buy TDRs to utilise 2 FSI, rules Bombay High Court

TDR prices will go up as a lot of demand for these rights has been created now by the court’s decision. Ergo, real-estate prices may go up further

The Bombay High Court on Thursday dismissed the Maharashtra government's decision to increase the floor space index (FSI) in Mumbai's suburbs from 1 to 1.33. In 2008, the Maharashtra government, in its State Budget, increased the floor space index (FSI) in Mumbai suburbs from 1 to 1.33. Additional FSI increase of 0.33 could have been purchased by the developers from the government as specified by the State government in its 10th April notification.

A public interest litigation (PIL) was filed by Amit Maru and Arun Gaikwad (both practising engineers and architects) last month alleging that the increase in FSI would lead to more construction and put a heavy burden on the infrastructure in the suburbs.

"The court's decision will force developers to buy transfer of development rights (TDRs). TDR prices might go up in the future as a lot of demand is created in the market now (for these rights)," said Pankaj Kapoor, founder, Liases Foras.

The maximum permissible FSI in the city's suburbs remain the same, i.e. 2. Earlier, developers had to buy 0.67 extra FSI, when an FSI of 1.33 was allowed by the government. The 0.67 FSI was available at a nominal price from the government. But now developers have to buy 1 FSI rather than 0.67 FSI at a higher price through TDR if they want to utilise the maximum developable area. 

The 10th April notification stated that the additional FSI was available at a cheaper price than the prevailing TDR prices in the market. Developers were expected to opt for this and hence TDR prices started falling last month. There are a lot of redevelopment projects currently being developed in suburban Mumbai and TDR forms an important part of them.

"The FSI remains same for the suburbs but the TDR prices will go up," said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.

Currently TDR prices vary between Rs2,400 per sq ft to Rs2,800 per sq ft. After the High Court decision, TDR prices will shoot up and developers like HDIL and Ackruti City will benefit from it as they generate a lot of revenue through sale of TDRs.

"Developers have to buy TDRs at an incremental price. Extra FSI is no more available at a nominal price. Owners and developers were buying TDRs anyway, but their dependency on TDRs is now increased," said Ashutosh Limaye, associate director-strategic consulting, Jones Lang LaSalle Meghraj.

While the maximum FSI possible for a normal suburban property still remains 2.00, the difference is:

1. To achieve 2.00 FSI, the owner/developer has to buy TDR, as premium FSI is no more available, resulting in increase in demand of TDR and thus a likely increase in prices of TDR. Eventually, it means an increase in cost of projects, meaning increase in real-estate prices.

2. While the premium FSI was decided by the government and was defined and thus known and fixed, the TDR sale and purchase is a market phenomenon. Thus the prices are variable depending on location of TDR generation and location of TDR deployment. Thus, there is a degree of uncertainty in pricing that will be added.




Pramod Nikam

6 years ago

This is useful information so as to get relation between TDS and FSI.


7 years ago

This Addl FSI & TDR is a rubbish. I wud like to know from the experts is this -TDR- commodity avalble in other Metros?. Every passing day the ever hungry politicians -as my friend calls them "BAKASURS" invent new ways to amass money. When Mr. Sharda Pawar was Defence minister he wanted to grab land in Cantonment areas by "as he called introducing democracy there. I will not be surprised 'land beyond Gateway of India covered under the sea water is also sold by TDR label. How 'backbay
Reclamation came into existence? Continuous pouring of people from villages, the shantys will grow. The Ruling party doing things in the name of Mahatma Gandhi are doing exactly opposite of what he propgated. The cultivation will fall and poor will be in the clutches of new sahukars. Give them facilities and incentive to stay in the villages. Why spend money on Mumbai. Spend that on the villages. People will be happy there. But then massive flow of 'votes' and accompaning moeny flow will stop. Who wants that to happen> - Arthachakra

Daily Market View: More gains on the cards

As suggested yesterday, the market rallied. We expect the market to hit 17,100 and possibly 17,300 in this stretch

The market was up in the morning session, taking cues from its Asian counterparts. The Sensex shut at 16,922, up 264 points (1.6%) and the Nifty settled at 5,078, up 78 points (1.6%). The uptrend gained further momentum in the afternoon session on the back of strong European markets, enabling local bourses to notch up gains for the second day in a row.

Asian stocks were up on Chinese export data and assurances from Federal Reserve chairman Ben Bernanke that the US economic recovery was on track. Key benchmark indices in Japan, South Korea, Hong Kong, Taiwan and Singapore rose by 0.06% to 1.56%. Indonesia's Jakarta Composite was down 0.63%. China's Shanghai Composite was down 0.82%. Sentiments were down in the Chinese market on the concern that further tightening measures may emerge after property prices in 70 of the country's large- and medium-sized cities rose for the 12th consecutive month in May 2010, climbing 12.4% from a year earlier.

US stocks were down on Wednesday, led by BP and other energy shares as the US probe of the oil spill in the Gulf of Mexico deepened. The Dow was down 40 points (0.41%) to 9,899. The S&P 500 was down 6.3 points, (0.6%) to 1,055.7. The Nasdaq was down 11.7 points (0.5%) to 2,158.9.  

Back home, the government has deferred the decision of selling stake in two mining companies-Coal India and Hindustan Copper. It planned to sell about 10% stake in Coal India, the world's largest coal miner, through an initial public offering to raise roughly $2.7 billion. It also planned to sell about 20% stake in Hindustan Copper to raise up to about Rs50 billion ($1.06 billion).

The food price index rose 16.74% in the year to 29th May, higher than the previous week's annual reading of 16.55%, following a rise in prices of fruits and potato. The fuel price index climbed 14.23%, compared with an annual rise of 14.14% in the previous week.

Foreign institutional investors were net sellers on Wednesday of Rs256 crore. Domestic institutional investors bought stocks worth Rs127 crore.

JSW Energy (up 2.3%) has entered into a memorandum of understanding (MoU) with Osho Venture FZCO, Dubai and Indian Ocean Mining (Pty) Ltd, South Africa, to acquire 70% equity interest in Indian Ocean Mining from Osho. Indian Ocean Mining has certain coal prospecting rights the in northwest region of South Africa. The MoU is part of the strategy to enhance fuel security for which JSW Energy is continuously evaluating various strategies and proposals to secure long-term imported coal linkages.

Tata Communications (Hong Kong), a wholly-owned indirect subsidiary of Tata Communications (up 4%), and China Entercom Communications Ltd have jointly withdrawn their equity joint venture application with the Chinese government. However, the two entities will continue with their existing network services co-operation relationship and have also entered into a new co-operation pact whereby they will work together on a commercial basis to allow Tata Communications to benefit from access to CEC's network and assets in China.

United Bank of India (up 0.9%) has said that the government of India has sanctioned the payment of Rs250 crore for the perpetual non-cumulative preference shares (PNCPS) of the bank. This will be a part of the Tier-I capital of the bank and carry an annual floating coupon to be benchmarked to the repo rate with a spread of 100 basis points to be readjusted annually. This capital infusion is part of the government's initial sanction to the proposal to infuse a total of Rs800 crore in the bank through PNCPS.


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