The diesel price hike for bulk consumers will steeply hike the cost of operations for commercial space across all segments, including IT space, according to developers.
Oil marketing companies have announced a hike of about Rs 9-10 a litre for bulk consumers -- commercial users buying diesel for power generation.
The power cost, particularly in Tamil Nadu and other States facing a power shortage will steeply increase, say industry representatives and IT space users and developers.
For the developers, power cost is a pass through as they recover the cost of power from their tenants. It is the office space users who will feel the pinch.
In Chennai, bulk consumers buy diesel at about Rs 49 a litre and will now be shelling out over Rs 60, a hike of Rs 11. Power cost has straight away increased by over 20 per cent. A litre of diesel generates about three units of electricity.
According to Ajit Kumar Chordia of Olympia Group, a developer of commercial and residential space, IT offices typically depend on diesel generator sets for power for at least six hours a day.
The industry thumb rule is IT spaces need about three units of electricity per square feet per day. One-third of their power requirement is from diesel.
Developers typically spread their power sources across grid power, open access power from third parties and diesel generators.
But with the hike in diesel power, more consumers will depend on power exchanges which could drive up power costs again, he felt.
According to industry sources, grid power from the utility costs about Rs 5.50 a unit, on the power exchange about Rs 12 and following the diesel price hike, about Rs 20 a unit from diesel generator sets.
Spinners rue
The Tamil Nadu Spinning Mills Association has expressed serious concern on the diesel price hike.
K. Venkatachalam, Chief Advisor to the Association, said the spinning mills were largely dependent on diesel generators to operate.
Over 15-20 tanker loads, about 12,000 litres a load, of diesel is bought from Kochi. The cost has gone up by about Rs 11 a litre to Rs 53.50.
The spinning mills are dependent solely on diesel generator sets between 6 p.m. and 10 p.m. and during load shedding and power cut.
Office spaces
M. Murali, Managing Director, Shriram Properties, said maintenance cost of office space will go up by about Rs 2/sq.ft a month from the present Rs 6.
Construction cost is also bound to increase as industries across the board are dependent on captive power to run their manufacturing units. A developer said lease rents are bound to take a hit. Though owners can pass on their power costs to tenants, tenants may not absorb all the costs and are bound to renegotiate or cut down on adding space.
‘Hike will cripple industries’
Our Coimbatore Bureau writes: While the impact of any rise in diesel prices on captive power generation is expected to be minimal due to limited use of diesel as a fuel in gensets, any hike in transport cost would be crippling for the industrial units in Tamil Nadu, according to D. Balasundaram, Chairman, Tamilnadu Electricity Consumers Association (TECA), Coimbatore.
He, however, cautioned that if the Oil Marketing Companies (OMCs) implemented a scheme to supply bulk diesel fully-priced (without subsidy), it might lead to diversion of diesel from retail supply to bulk consumers (industrial consumers) because of significant difference in the rates for the two class of consumers.
Speaking to Business Line here on Friday, he said diesel-powered captive power plants that were new or well-maintained would be able to generate about 3.5 units of electricity for every litre of diesel. At the current retail rate of diesel of about Rs 50.50/litre in the city, per unit cost of captive power worked out to be Rs 14.40. But the power supplied by electricity board costs only Rs 5.50 making it impossible to depend entirely on captive power to run the industrial units using diesel as the fuel. It was for this reason that industries that rely on captive power plants to meet their power needs significantly use alternative fuels such as furnace oil but even these were uneconomical. Generally industries use captive power plants for short durations as it was “not just possible at all' to operate industrial units fully on diesel powered gensets.”
Balasundaram said some of the large consumers have found procuring diesel from Kerala was more economical because of the tax difference that made diesel purchase cheaper by Rs 7/litre compared to the Coimbatore rates. But even this advantage would be lost if the bulk consumers were charged at market price. He was also apprehensive of the price difference between the retail price of diesel and the bulk diesel price driving large consumers to use passenger vehicles to get diesel at retail prices, at least to meet part of their needs.
He feared that industries in Tamil Nadu would suffer a major jolt because of its location disadvantage both in terms of sourcing raw materials and in sending the finished goods to the consuming centres. The hike in transport cost would make Tamil Nadu lose out its competitive edge to more strategically placed States such as Gujarat, Maharashtra, Chhattisgarh, MP, etc and this would particularly be so in case of industries such as textiles for whom transportation cost formed significant share of the production cost. Already many in Coimbatore are running their units only when the grid power was available, mostly in the night shift, leaving the workforce idle during power blackouts.