"We definitely will be needing more power," said Ajay Kumar Bhalla, Secretary of Ministry of Power, when asked about the
condition of country's power sector.
Bhalla's statement came at a time when Credit Suisse and CLSA said they expected power shortages in the next four years paving way for fresh capex in the sector after a couple of years. Here is the full transcript of the interview.
Q: One of the points noted in this rise in power demand and power price is that it has greatly benefited the central power companies as well as the state owned generating companies. For instances the central power company saw their capacity utilisation increase by 155 basis points in the last quarter and state genco saw their capacity utilisation that is their plant load factor (PLF) rise by 480 basis points in the last two quarters. The private power companies did not see an increase barring maybe Tata Power or CESC plant, the private companies have not seen an increase in PLF, how do you solve this problem even if there is demand these guys are not benefiting?
Bhalla: There are different factors in power sector, where is that coal linkage, where do you have the PPAs and how much like in center generating station there is unscheduled power or there is 15 percent power of central government. Similarly state governments may have coal, but may not have demand so then that power gets into exchange. It depends on coal availability with the independent power producer (IPP) and if who so ever had coal had come to the exchange actually. You are right, may not be big numbers, but I will go to the other effort which we made to collect or aggregate 2,500 megawatt of power and there people who had coal available with them had come and paid and we have been able to contract PPAs with the state governments for 3 years terms for 1,900 megawatt.
Q: Why was it 1,900 and not 2,500? Is there an inability of the discoms to sign because they don’t have money?
Bhalla: It was not on discoms side, it was on the generation side. We generally whatever is the L1 price we get all other bidders have to match that. So, that Rs 4.24 was matched by others so it came upto 1,900 megawatt. One of the bidder who had quoted 600 megawatt did not match that price, so naturally we didn’t had the power but on the demand side, definitely had the more demand than 2,500. So, we are planning another tranche of similar kind.
Q: Let me just come to the problem of the private power companies many of whom are on the verge of being dragged to NCLT. It is only the Supreme Court which has stayed that process, do you see the ability of these power companies, all brand new power companies to be able to sign fuel supply agreements (FSA) at all, any move being made by the government?
Bhalla: Government was making different efforts, I mean the polices which ministry had brought out was that tolling policy for utilisation of coal of the distant states in some of these plants, it is happening in Gujarat and by one or two plants in Chhattisgarh. Then we had allowed them to come in that aggregation model also and secondly some of the plants are getting resolved outside NCLT also. The efforts of the lenders are on. But yes some of the plants may have to go to NCLT and there are different reasons. One is the tariff at which they had bid so they are not able to service their debt so anybody who picks up that thing cannot service the debt.
So, somewhere it has to be brought down to a sustainable level. So, all these lenders had done the sustainability ratings and all and they happened doing bidding. I understand that 4-5 commissioned plants may be getting resolved but the ones who are under construction or the way the construction had just started and all and if their economics is not workable now and they are not getting any more loans or promoters are not able to infuse equity of their part naturally then promoter will have to walk out of it and the process is available under IBC and the NCLT.
Let us not look at that very badly. If commission capacities get wasted, we should be really concerned, but most of the commissioned capacities we should be able to retrieve. Some of the plants where the construction were at the elementary stage I don’t know, NCLT will have to look at that and see whatever is the retrieval and all.
Bhalla: It is a matter of appreciation that this fresh capacities which are being talked about is at a later stage, beyond 2022. What we are looking at is the capacities which are under construction now and are little stressed. But when these get resolved and see the Central Electricity Authority of India (CEA) plan about 4,500 megawatt is under construction during this 5 year period, largely central and state about 8,000 megawatt of private sector is also there and these are being counted in the projection of central electricity authority then we have plan to retire the older plants also.
Q: I will tell you where the contradiction is coming from. People are already talking about the need to put in fresh capacity. We had a note recently from CLSA which said that fresh capacity will be needed, a note from Credit Suisse saying fresh capacity will be needed isn’t it a bit contradicting that people are asking for fresh capacity at a time when there is almost 100-1,000 megawatts of ideal capacity even not counting the gas based plants?. About nearly 8,000 megawatt plants have already been retired. We are looking at a total about 20,000-22,000 megawatts to be retired, so these are capacities which are under the plan of central electricity authority which is available in the public domain are already there accounted for.
So, beyond 22 to 27 if unless people talk now and start talking of establishing capacities we may run short of this thing in 2022, 2023 and 2024 those years. So, that is what being talked about. I mean you start a power plant today it will come up 5 years down the line.
Q: Let me just persists for one last time on this issue. It is at least about 20000 megawatts to 30000 megawatts which are languishing because they do not have FSAs and PPAs. They are not able to service their debt because they are hardly utilising any capacity. Is there a plan to somehow retrieve them either by signing more FSAs and PPAs or by scraping the older plants at a faster clip?
Bhalla: Both things we are doing. Under the Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI) policy FSAs are being made available. About 10000 megawatt capacity has been able to avail that coal linkage and they are now generating and all. So, out of 40000 odd megawatt which was initially known as stressed plants about 10000 megawatt has definitely come out of it. If bank lenders are able to resolve then a few more will come out of it.
Now for getting more PPAs we have discussions with the state governments, we have some hydro projects getting commissioned and which have been contracted in recent times, some of the hydro projects coming up in Bhutan also will be getting commissioned shortly, so we are selling that power to the discoms, we are tying it up with everybody and we feel that there is a demand amongst the distribution companies in the state governments to buy more power, to contract more power and if you can contract power for 30 years – hydro power is getting contracted for about 35 years.So, we are finding people willing but they want a price today, I must put a paper on the table saying this is what the 35 years price would look like and people are willing to sign PPAs. Similarly our aggregation model as I said there was a demand but that is a medium term demand.
So, if the demand trajectory remains, if you have seen Niti Aayog’s GDP growth projection of 8 percent, we definitely will be needing more power and I do not see any reason why distribution companies shouldn’t be contracting more power.
Historically some of them have the MoU based agreements lying with some of the central and state generating companies. So, that also is available with them, so they have to pick up now and see which one they have to do. On competitive bidding they can get better price. So, they can go for that. It may not be today or tomorrow but definitely a demand scenario is emerging.
Bhalla: We are definitely looking at scraping some of the plants which are inefficient besides the plants which will not meet the environmental norms. So, these two categories are definitely getting retired. Any inefficient heat rate plant definitely we will be phasing out.
Q: The state owned plants like NTPC have an inherent advantage because they have a regulated rate of return on older plants upto 2013 and that gives them an unfair advantage. The second problem that IPPs face is that many incompetent or rather old plants are continued to linger, although there has been some scrappage. Can both these be corrected – remove the advantage which the regulated return has and scrap old plants at a faster clip? In our high level committee under the cabinet secretary this issue has also been flagged and recommendation has been made to first reduce the coal quantity to in efficient plants to a normative level of heat efficiency and then phase them out.If there is economic life left, there are other linkages and all, we are seeing that and as I said central electricity authority has placed a plan on the table of 22000 megawatt to be retired. So, we are looking at the legal processes and other things on how to do it. Regulator definitely has brought out a paper for the next cycle, I am sure people would be raising this issue, you mentioned about NTPCs plants.