The economic slowdown has hit the Indian power sector. With a dipping Plant Load Factor (PLF) and high non-performing asset (NPA) quotient, the sector needs a decisive push from the government through the resolution of various sectoral issues. BE’s Saptarshi Deb spoke to Raghav Raj Kanoria, Managing Director, India Power Corporation Limited (IPCL).
Q. The index of industrial production (IIP) has reached a low point as per recent data. How do you see this development impacting the power sector?
A. This year has been tough for many sectors including the power sector, which has been eclipsed with unprecedented bad loans and numerous sectoral issues. In the last few months, power demand has been consistently falling as compared to last year, which is worrisome as it reflects the contraction in key areas including the industrial and commercial segments. This is certainly a result of the economic slowdown and will impact the revenues of both generation companies and distribution companies (discoms) across the country. We are still optimistic about the revival of the sector as power is a basic necessity and demand is bound to increase with strong support due to population growth, urbanisation, and rising living standards. We are yet to witness the latent power demand because of the recently accomplished 100% rural electrification countrywide. However, the discoms can offer incentives on higher electricity consumption by industries to encourage more usage which in turn could lead to an increase in the IIP.
Q. The Plant Load Factor (PLF) in the thermal segment had edged down to 52.5% in Q2 of FY20 as against 57.6% in the corresponding quarter of the last fiscal. How do you see this going forward and what can be the impact of this low PLF?
A. The peak demand of our country stands at 180 GW whereas the installed capacity is more than 360 GW (more than the double). In fact, the thermal capacity alone is around 230 GW and the renewable capacity is around 80 GW. The renewable energy sector is growing every year due to the governmental push for new renewable capacity. Around 50,000 MW thermal power plants are stressed and instead of reviving them and removing hurdles to make them operational, fresh investments are in pipeline which I think is wastage of national assets. The stressed thermal capacity translates to more than Rs. 2 lakhs crore of Non-Performing Loans (NPL). On the other hand, discoms are ailing with high AT&C losses which makes it very difficult for them to give 24x7 power supply due to lack of revenues and therefore their ability to enter into new PPAs and buy electricity is severely affected. The government has to take bold steps in taking regulatory reforms to prioritise the sectorʼs revival in terms of making coal available to all power producers on cost-plus basis, prioritising existing thermal assets for new PPAs over renewables, focus on Strategic Debt Restructuring (SDR) of the loans and ensure a standstill on new capacity addition for the next three years. Until these measures are taken, I expect the PLFs of thermal power plants to be in the range of 50-55% and further stress for these assets.
Q. Is a new, more robust payment security mechanism needed to help generators who have large dues from discoms?
A. The current outstanding from the discoms to generators is estimated to be a staggering `80,000 crore. This is impacting the health of all power generating companies and led many to a situation of distress. The discipline of honouring contracts and payment timelines has been talked about extensively but the central and state governments have to implement strict discipline and punish any deviation. A positive step has been taken by making it compulsory for discoms to have a Letter of Credit (LC) in place against power supplies. But it’s only been implemented for payment security worth a week or maximum of one-month supply. Discoms need to have at least three months of LC and strong adherence to payment timelines.
Q. As far as West Bengal is concerned, do you feel that absence of parallel license for distribution of electricity has resulted in the rise of power tariffs in many regions in the state?
A. It is imperative to say that where the business is monopolistic in nature there would be an absence of competitive pricing pressure. This can either lead to inefficiency or no desire to give the best services at affordable prices. In the Asansol-Raniganj area, there are three licensees operating - one being IPCL - and if you compare the tariffs of all consumer categories, we are the cheapest. In fact, our industrial tariffs are one of the most affordable in the country which is in range of Rs. 4 to Rs. 5 compared to tariffs higher than Rs. 7 in other parts of West Bengal and it is also much lower than the current national average that is around Rs. 6.8. The government and respective regulators must see that new private licenses in PPP mode or parallel licenses are being carved out to bring competition. Otherwise efficiency and lower AT&C loss will be a far-fetched dream.
Q. There is a rise in import of coal and that is resulting in higher cost of production for power companies. Do you think better coal linkage can solve this problem?
A. Bidding under various schedules of the Shakti Scheme has enabled many power producers to have Fuel Supply Agreement (FSA) with Coal India and its subsidiaries and it will definitely help the struggling power generating companies in getting a consistent supply of coal for their power plants. New bidding schemes are based on giving a discount on the Net-Levelised Tariff so the power generated through those coal sources will have discount on the tariff borne by the end consumers and that is a good sign. But the government still has to see that coal production is ramped up to meet the demand and also these biddings for coal linkages are completed in a time-bound manner. In the medium to long term, the government has to ensure that coal is supplied at a notified price i.e. on cost-plus basis to all power producers which is ultimately in the interest of consumers.
Q. IPCL is now a 100-year-old power company. What are your expectations from the company in near future? How are you looking at the renewable sector?
A. Indeed, it is a proud moment. We are celebrating this feat and we are now in a league achieved only by few IPCL being a century-old utility is still focused on power distribution opportunities like new licenses and acquisition of power utilities. IPCL has been constantly transforming itself from a conventional utility to a smart utility through modernisation and network upgradation. Technology intervention has always been the cornerstone for us and today our distribution area is equipped with state-of-the-art facilities like GIS, SCADA, AMR, Smart Metering & IoT, Online DT Health Monitoring among other digital & IT initiatives. We want to leverage this experience and we are pursuing many smart grid and Advanced Metering Infrastructure (AMI) opportunities in the country. IPCL operates a portfolio of about 100 MW in the renewable sector in India and continues to evaluate opportunities to grow this portfolio in India as well as overseas.