Metal producers sell their captive power to compensate the losses

Metal producers are selling their surplus power to compensate the losses from production cuts due to slowing of demand. According to Power Trading Corporation (PTC), the government-run power trading company with the largest market share, the sale from such captive power units of companies has increased by 36 per cent in the past four months.

“The trend of higher sale by captive power units is likely to continue till their internal consumption demand picks up,” said a PTC official who did not wish to be quoted. “It is likely to reach 1,000 Mw round-the-clock supply by the captive units by the end of the year,” he said. Currently these units are providing 780 Mw of power, up from 575 Mw in January.

One example is base metal producer Bharat Aluminium Company (Balco), where the dip in metal prices is making production unprofitable. This subsidiary of billionaire Anil Agarwal’s Sterlite Industries is planning to completely shut its Plant-I, that produces 1,00,000 tonnes of aluminium yearly. The production facility has a 270 Mw captive power plant.

“We expect surplus power sale to drive our bottom line in the current financial year,” said Naveen Agarwal, executive vice chairman, Sterlite Industries, in a conference call following the fourth quarter result. Plant-I is already partially closed and it is selling about 130 Mw of power. The company expects to sell about 250 Mw after the plant is fully closed.

Sponge iron producer Monnet Ispat is another such producer, now selling more than 100 Mw in the open market. Tata Steel, India’s largest producer, is selling about 50 Mw to third parties, says PTC. Cement producers such as Ambuja Cements and

Shree Cement are other non-metal companies selling surplus power of less than 50 Mw.

According to PTC, in the past four months the companies have sold power at an average price of Rs 7 for 1 Kw/hour. At this rate, a company would earn Rs 1.68 lakh in a day and Rs 6.13 crore in a year, for selling 1 Mw of power.

“Sale of surplus power would not only provide cushion from losses due to the production cut, but in some cases it would in fact drive up a company’s profitability” said Chirag Khasgiwala, an analyst with Emkay Share and Stock Brokers, a Mumbai-based brokerage.