Merchant power tariffs exhibit extreme volatility; players have significant untied capacities

Merchant power tariffs, which were at a high of Rs14 per unit last year, are expected to stabilise at an average rate of Rs5 per unit for the next couple of years. Jindal Power, Adani Power and Indiabulls Power are companies with large exposure to this volatility of rates

In 2009, merchant power tariffs were ruling at Rs14 per unit. Currently, they are at Rs2-Rs5 per unit. The wide fluctuation in tariffs indicates the volatility in this trade.

With a major part of their respective capacities untied, Jindal Power Ltd, Adani Power Ltd and Indiabulls Power Ltd are the main players with major exposure to these price fluctuations.

Jindal Steel and Power Ltd (JSPL) has been an early and dominant player in the merchant power segment. Jindal Power Ltd (JPL), which is a subsidiary of JSPL, currently has 1,000MW of operational capacity. This 1,000MW is being generated from the Tamnar power plant in Chhattisgarh which has been operational since 2008. Last year, the entire 1,000MW from this plant was sold through short-term power purchase agreements (PPAs).

According to JPL's Draft Red Herring Prospectus (DRHP) filed with the Securities and Exchange Board of India, the company has a total project portfolio of around 15,660MW. Out of this, around 1,000MW is operational, 10,480MW is under implementation and 4,180MW is in the planning stage. The DRHP further states that out of this 11,480MW (the operational and under-implementation capacities), around 2,125MW has already been tied up.

Thus, based on its current operational capacity, almost 100% of the company's capacity is based on short-term sale. Taking the total capacity planned to be added by 2020, around 81% of the planned capacity is still untied.

Adani Power at present has a commissioned power capacity of 660MW, at its first two units of the Mundra Phase-I project, Gujarat. The company plans a total generating capacity of 6,600MW to be operational by 2012. Out of this 6,600MW, 1,757MW or 26% is untied.

Indiabulls Power Ltd plans a total capacity of around 6,615MW. The company plans to have around 25% of this total planned capacity on short-term sale. Thus, the company's total capacity exposure to volatile merchant rates is around 25%.

"The power companies whose performance would be highly volatile are JSPL, along with Adani Power Ltd and Indiabulls Power Ltd to some extent. These three companies have a significant capacity which is untied," said Arun Kumar, research analyst with a broking firm.

Merchant power tariffs were at a high of Rs14 to Rs15 per unit in early-June 2009. Last week, merchant power was traded in the range of Rs2 per unit to Rs5 per unit. Going forward, industry experts expect merchant power rates to stabilise at an average rate of Rs5 per unit for the next couple of years.

JSPL's average price realisation has also moved in tandem with merchant power rates. The company's average price realisation was around Rs2.61 per unit in FY08, which increased to Rs5.91 per unit in FY09. It was highest in Q1FY10, at Rs6.71 per unit.


Mumbai office-space developers increase free ‘fit-out’ period to attract tenants

Developers usually offer a free ‘fit-out’ period of two months for tenants to complete furnishing their office space. But poor demand is forcing developers of new projects to waive the rent for a period of five months or even more

Squeezed by oversupply and muted demand, developers are trying out a novel strategy to attract tenants to their newly launched commercial properties in Mumbai. Instead of lowering the rentals, which is the usual strategy to cope with poor demand, developers are instead offering a rent-free 'fit-out' period of at least five months (more, in some cases) for tenants who are willing to sign a lease agreement for at least nine years.

Developers usually offer a free fit-out period of two months for tenants to complete furnishing their office space. But now, even tenants who complete furnishing their premises in two months are able to bargain for a much longer fit-out period.

According to analysts, the commercial real-estate segment has started showing signs of recovery from the March 2010 quarter, but developers are still finding it difficult to get occupants for new projects. This has forced developers of at least seven office projects in Mumbai to increase the fit-out period. These projects are: Western Edge (from Kanakia Space), Supreme Chambers (from Supreme Universal), Ackruti Gold (Ackruti City Ltd), Pinnacle Corporate Park (Pooja Constructions), Grand Palladium, Cresenzo (Parinee Developers) and One Indiabulls Centre (Indiabulls Real Estate).

"These kinds of discounts might help them to attract tenants," said Raja Kaushal, executive director and chief operating officer of BNP Paribas Real Estate (India). 
The developers of these properties could not be contacted for their comments.
Around 160 million sq ft of commercial space is expected to hit the market over the next two years while the demand is estimated to be for around 122 million sq ft. As a result, developers are trying hard to clear their inventories before the oversupply scenario worsens and they are forced to lower their rentals to attract tenants.

"Rentals in the commercial segment won't rise for at least a year as there is a huge amount of over-supply," said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd. So, all indications are that tenants will continue to dictate terms for some time to come. 




7 years ago

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Are SEBI’s consent orders a sham?

SEBI is letting off habitual offenders in stock markets with petty fines through its “consent orders.” Firms like SMC Global have been allowed to file consent terms seven times and Shriram group six times, which damage the very purpose of the consent process as a deterrent

The Securities and Exchange Board of India's (SEBI) website says that consent orders give it the flexibility to "achieve the twin goals of an appropriate sanction, remedy and deterrence without resorting to litigation, lengthy proceedings and consequent delays" (emphasis added). In fact, the exact opposite is true. The consent order regime, although technically overseen by a high power committee (HPC), is conducted in the most shockingly capricious manner, with minimal disclosures or correlation between the nature of offence, repeated violations and size of penalty.

Statistics compiled by financed by the Investor Education & Protection Fund, reveal 92 instances of two or more consent filings by the same entity. A couple of firms have been allowed to file consent applications a whopping seven times each. In fact, the details only magnify the whimsicality and the deep rot.

SEBI's website claims that consent proceedings take into account factors like 'history of non-compliance', 'track record of the violator' (whether guilty of similar or serious past violations), and conditions necessary 'to deter future non-compliance'. These rules have been ignored in the most wanton application of consent regulations to let off serious and multiple offenders.

SMC Global Securities and Action Financial Services (India) Ltd has been allowed to file consent terms a phenomenal seven times each while Systematix Shares & Stocks Pvt Ltd has escaped by filing consent six times. The Chennai-based Shriram group had six group entities (including Pioneer Overseas and SR Real Estate Finance) and its chairman filing a total of 14 consent applications for violating takeover regulations in Shriram Overseas. Again, unlike Manmohan Shetty, whose offer to pay Rs1 lakh under consent terms was rejected (he has been slapped with a Rs1 crore penalty), each of these entities paid just Rs50,000.

Why was SEBI so benevolent to the Shriram group? Top Media Entertainment was caught manipulating its own shares, but didn't pay a penny; all it did was to voluntarily promise to stay away from the market for three years.

Let's look at the special two, which SEBI officials decided would get seven chances to escape with a penalty. The first is SMC Global Securities which, in April 2008, paid Rs5 lakh for dealing with unregistered sub-brokers, not segregating client accounts from its own and other violations. In August, it paid Rs15 lakh for a whole laundry list of unauthorised trading and irregular activity in almost every aspect of its brokerage business. Did it straighten up? No. In February 2009, it paid Rs6 lakh for an issue that has been under investigation since 2007 for fictitious and synchronised trading in the derivatives segment. In June 2009, it paid Rs7.5 lakh on two consecutive days under two separate consent orders for more irregularities in derivatives trading. Then, in July 2009, it coughed up Rs7.75 lakh for failure to redress investor grievances and for dealing with unauthorised sub-brokers. And it paid up another Rs10.25 lakh in September 2009 for dubious dealing in Jubilant Organosys. The total penalty? Rs51 lakh - half of what is demanded from Manmohan Shetty for the relatively minor transgression of selling his shares in a hurry. Doesn't this only undermine the consent order regulation?  Is the HPC, that is supposedly clearing and approving consent applications, napping? Who does the process work for? If there is public interest litigation, will SEBI be able to defend itself?

Now let's look at Action Financial Services which also got away with seven consent applications. It paid Rs7 lakh in April 2009 for irregular trading in Database Finance shares, Rs15 lakh on 10 November 2009 for manipulative transactions in GG Automotive India shares and Rs20 lakh on 16 November 2009 for price manipulation in the shares of Highland Industries. On 9 December 2009, its payoff to SEBI was halved to Rs10 lakh for manipulation of Suryadeep Salt Refinery & Chemical Works. Soon after, on 22 December 2009, it paid Rs20 lakh for manipulating G-Tech Info Training scrips. In 2010, it has already paid twice -in January and in April 2010-just Rs2.58 lakh for price and volume manipulation of Fast Track Entertainment shares and Rs1.65 lakh only for synchronised trading and other mischief in Malvica Engineering shares. The total payment for this long series of dubious trading is a mere Rs75.35 lakh. No ban, nor cancellation of registration, and a total penalty that is less than that of Manmohan Shetty.

Systematix Shares & Stock Brokers has paid just Rs16.5 lakh over six consent orders over 2008 and 2009-Rs4 lakh for manipulating derivatives trades, Rs2 lakh for synchronised and fictitious trades in Granules India, Rs2 lakh for manipulating Today's Writing Products and KRBL Ltd, Rs5 lakh for manipulating the Jindal Polyester share price and another Rs2.5 lakh for the same offence in the case of Gravity India Ltd.

Next, we come to the Ketan Parekh crony called Mangal Keshav Securities, whose consent applications were also acceptable to SEBI for paltry sums of Rs10 lakh (for circular trading and volume ramp-up in Database Finance in September 2008), Rs7 lakh (irregular transactions in Jindal Stainless in May 2009), Rs3.5 lakh (for synchronised trades in Adani Exports in June 2009) and Rs7 lakh (for price and volume ramp up in the shares of BSEL Infrastructure Realty and Maharashtra Seamless in February 2010). Total payment was just Rs27.50 lakh, despite its long, dubious history and association with Ketan Parekh, who is identified as the architect of the 2000-01 securities scam.

Now, consider Shrikant G Mantri. There are four consent applications listed in his individual name and another four under M/s Shrikant G Mantri. Similarly, Mansukhlal Manilal Upadhyay and the firm by the same name, as well as Pawankumar Parmeshwarlal and a firm by the same name, have six consent orders each. Panther Fincap, which the joint parliamentary committee (JPC) report lists as a Ketan Parekh group company, has also escaped by the consent route. Keynote Corporate Services has two consent orders for violating investment banking norms (fine: Rs6.25 lakh) and two more, through Keynote Capital, for synchronised trading in Himachal Futuristic and manipulation of Coromandel Fertiliser shares and cornering of Dagger Forst shares (the bill: Rs25.42 lakh).

At least 15 entities, including Kotak Securities and First Custodian Fund (India) Limited, have been allowed to file three consent orders. Even Rajesh Jhaveri, notorious for manipulating 'several' IPOs, got away with three consent applications and a mere Rs7.3 lakh fine and voluntary suspension of registration for a year, ending on 14th July. Classic Credit and Adani Properties have two consent orders each.

Finally, Parklight Investments, which made benami applications for grabbing a bigger allotment in the IPO of Nissan Copper and for ramping its share price, paid the maximum ever penalty-of just over Rs14 crore. SEBI doesn't tell us why it wasn't barred if its transgressions were so huge or why its three other consent orders attracted relatively lower penalties, although it involved manipulation of many more scrips.  Parklight Securities was allowed to escape with a Rs25,000 payment and a three-month suspension of registration through two consent applications, despite its involvement in 15 of the worst cases of price manipulation. Why did the Parklight companies get six consent applications instead of being permanently barred? Did someone pull strings? Clearly, SEBI has a lot of explaining to do if someone bothers to question which offender it is letting off for how much and why.



Pradeep Chamaria

7 years ago

what do you think will happen to the PIL - the officer dealing with the PIL will also be purchased by people at SMC and the PIL dismissed

its a waste of time

dear fellows - just check the consent orders of SEBI - the hearings went on till there was a honest officer incharge. Once the officer was changed by the malpractices of SMC - in just one hearing the case was dissolved and a small amount of Consent charges was levied.

The case was for crores of rupees and a small amount of 5 laksh or 7.5 laksh or 10 lakhs was levied as penalty.

what happend to the poor investors who had lost these croeres of rupees in the hands of SMC

K B Patil

7 years ago

All institutions in the country have been compromised. The MCI boss's arrest shows how rotten the system of medical education has been. Similarly, you are now seeing lot of rot even in the army and police (the bullet proof vest scam). In mineral rich states, the mining mafia is a law unto itself. In the govt., smaller parties seem to actually encourage corruption by their ministers. We once saw how a clean minister of the Shiv Sena was removed for not 'pleasing' his boss. The rot runs deep in our country's veins and SEBI is just following the script.

s n bartake

7 years ago

I think this is a fit case for PIL. SEBI under chairmanship of Mr. Bhave is more interested in wiping off so many hundreds of small Independent Financial Advisors (IFAs) of Mutual Funds (MFs) than wiping off big manipulators in stock markets and MF distributions. Many IFAs were dependent for their livelihood on distribution MF products and were providing good service to the investors who do not have time or information or proper advice on these products.

By giving a one time paltry refund of a few hundred rupees (mine Rs. 300/-), for a scam in a power company's issue of its shares - that too after a long time, SEBI wants to hoodwink public over its inefficient working and connivance with regular offenders. Wake up Mr. Bhave

Narendra Doshi

7 years ago

Great research. Can Moneylife not take some initiative?
I wonder & am sure that EACH of the entities paid out BECAUSE they would have gained or benefitted in the short & long term - financially, brand image etc - MANIFOLD the amount they paid.
Is there an end to this going to happen & in a transparent manner ?

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