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February 9, 2001
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Money > Reuters > Report February 9, 2001 |
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Government to scrap utilities' rate of return capThe government plans to abolish the 16 per cent cap on power project's rate of return, and allow utilities to charge whatever rates the market will bear, a financial daily reported on Friday. The move will benefit power companies like BSES and Tata Power, which are very efficient but cannot earn more now due to the cap on returns, the paper said without citing sources. The government currently allows power companies to earn a fixed 16 per cent rate of return on equity. "The disadvantage of the existing system is that power developers who have higher efficiency and perform better cannot reap the benefits as their rate of return is capped," the paper added. The paper said the new system will be announced in the budget due to be presented to Parliament on February 28. "The coming budget on February 28 is likely to offer a bonanza for the power sector," the paper reported. Under the new system, electric utilities will be free to set their own tariff rates, a situation allowing companies which operate more efficient power plants to earn greater profit. "Consequently, bottomlines in the coming financial year will see a sharp increase as the power to fix the power tariff will devolve on these companies' boards. This could lead to the upward re-rating of the scrips on the bourse," the newspaper said.
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