What is your broad-based assessment of the final tariff structure for power companies? Would you say a win-win situation has been maintained?

Broadly the stability in the tariff regime has been maintained and certain improvements have been made in the normative parameters. Whatever has been the experience in the recent years on certain issues of storage of coal at the power end points and flexibilisation of the plants to accommodate renewable energy, all these aspects have been attempted to be addressed by this regulation. I feel it is quite a win-win situation for all. Like reduction in payment period, the working capital will definitely reflect on the cost of power. It will come down a bit. I am sure it will be win-win for both discoms as well as generators.

Would NTPC benefit because it is a regulated entity and they have got fixed ROEs.

ROE has been maintained. Actually, looking at the construction time etc, the effective ROE comes down and at reasonable ROE, NTPC has been able to raise resources at much lesser rate of interest. It achieves a balance. We need not worry too much about this ROE. Of course, there was an issue that after 25 years why should that much return be given. That has also been addressed in this regulation.

The other aspect which nobody is talking about is the coal availability which is a challenge for the power sector. It seems coal imports are back and they are not far away from its peak. Why is that?

Only yesterday, Coal India CMD has announced that they have crossed 600 million tonnes target. There has been growth in dispatch of more than 7.3 per cent, 7.4 per cent but yes the power demand has also been increasing. We have been on conventional. There has been about 3.5 per cent growth and overall 5.1 per cent. This year there has been some import of coal for blending purposes because the imported coal-based plants like in Mundra -- both Tata and Adani plants generated less due to certain tariff-related regulatory issues, and naturally that much quantum of power had to be met. 

I do not see it as a very serious issue. Coal India has a plan. A few years back, one billion tonne production plan was made and in early 2017, certain coal-based plants took less coal for about six months and some of these plants perhaps got delayed but the production last fiscal shows that Coal India has brought the production plans back on the table. 

There would be issues of land acquisition and clearances and resettlement issues in open-cast mining. We have displaced some people. But the plans are definitely there and we regularly review them especially on transportation, connectivity and clearances and they should be able to meet the requirement.

What about PLF (plant load factor), currently and also going forward?

Yes 61 per cent is an average figure. But as capacities are getting added -- even this financial year some coal capacities have been added -- growth on conventional asset was only 3.5 per cent plus. I feel PLF of different plants could be different depending on lack of PPAs or lack of coal availability for certain IIPs. This is the overall PLF. 

If you look at NTPC, PLF is always 70 per cent plus and some of the patented plants generate working 90 per cent PLF. This will improve once the demand grows but we always compare it with four-five years back when the PLF was high because the coal capacities were low. The plants were running at full capacity. So, it is not that those plants are generating at lower PLF now. New capacities have been added, which have not been able to reach full capacities and we are working separately for getting some medium-term power purchase agreements for these plants.

How big a relief could be relaxation for power norms and the way NPAs are calculated for private players?

There is stress in power sector. Each case is different and we cannot generalise too much but there were certain sectoral issues. There was cancellation of coal blocks. There was lack of PPAs. Some of the PPAs were in dispute and then there were some equity issues by the promoters themselves and some of them had bid very aggressive tariffs. 

Now all the solutions cannot be found by the government but we tried to address some of these sectoral issues especially payments, coal and PPAs in an innovative manner. We went to a high- level empowered committee and we have issued orders and the Shakti Policy has been amended by the ministry of coal to permit short-term sale of power from coal linkage. 

So, it is a matter of time before issues are solved. The RBI circular has put some tight guidelines on the bankers who are worried. They may lose money in one-time settlement or in the bidding but then some of the capacities which are still under construction without any EPS and all may end up in NCLT and they are already in the process of either admission or in hearing in NCLT. Whatever could be resolved has also been attempted to be resolved. It is a balanced approach. We are trying to bring the commission capacities with coal linkages to PPAs. 

In case of commissioned capacities without coal linkages, we are trying to get some coal through Shakti modification. Capacities which are under construction and at a stage where small investments cannot turn them around and bring them in commissioning, perhaps have to be dealt in NCLT.

Talk about the post merger benefits of PFC and REC. Would you say that the combined entity is much better off than the two standalone entities?

At present, government shares in REC have been acuired by PFC. The process of merger is yet to kick in, We will examine that side also. The share market indicates that both the companies are doing well. There were apprehensions on the ratings, they were under watch. All those things have over and now both the companies are there. They are complementary in their functioning. 

PFC had invested more on the generation assets and REC on transmission and distribution assets, now they can sort of coordinate well. they were together funding some stressed assets so the decision making becomes easier now if those assets are getting resolved. In any case for raising resources in the international markets, both the companies together will be in a better position.

What is the situation with discoms?

I very much appreciate the concern. The position during FY19 have deteriorated. The discoms audit is delayed and the correct figures take some time to reach us. I was trying to collect some data from some of the states, we got about 50-60 per cent data of the nine month period which shows that the billing efficiency has gone up, the collection efficiency has gone up and AT&C losses also have come down marginally in the nine months and compared to 20 per cent plus last year, stand at 19 plus percent this year. But the losses in the balance sheets have gone up and the power purchase cost has also gone up. There have been increase in coal prices and railway freight and that has impacted the power purchase cost.

All that has led to ACS ARR gap increasing, though efficiency factors are kicking in. If there is increase in power purchase cost of 21 paisa, the ACS ARR gap has got affected by only eight paisa. That shows that the whole thing has not impacted the discoms badly. We have to look at all the factors and not only the discoms. Their balance sheets from Rs 50,000 crore plus has come down to Rs 15,000 crore in the last fiscal. In FY19, maybe it would be more than Rs 15,000 crore but not much, though improvements are there. The tariff applications have started moving in. The discoms have been approaching the regulators for revising the tariff. That culture has set in and the efficiency has also been brought in. We are looking at improvement of their O&M norms. 

We are pushing metering, we are increasing the reach so their billing efficiency and quantum energy billed and all have shown definitely positive trends. I am hopeful that despite the ups and downs in different discoms, different issues of subsidies getting released and all, things would improve. Sometimes the subsidies get released in March which affects the balance sheets and will show positive by next three months, when we get the results for the whole financial year. It is a mixed bag at this moment.

Power companies are telling us that the private sector is still not very convinced about starting capex. ABB, BHEL, Alsthom are harbingers of which way the power demand and power capex is moving. When do you think the real power capex will start?

There seems to be a lull at this moment but when we look at the projections of the future, we need to add capacities and if we start working on a project today, the capacity comes into commissioning after five to six years. There definitely would be need to add capacities. We have made a projection plan, CA does it very regularly but we are looking at a proper energy mix by 2030, wherein we will integrate how much maximum renewables we can integrate and what is the balance requirement. 

Presently, the balancing is coming from hydro to some extent and to flexible operations of the coal plants, The regulator in its tariff regulation has also incentivised the part that if your ramp up rate is 1 per cent, you get incentivised in your returns. 

We expect that more capacities will have to be added. Some brown-field expansions of NTPC have taken place. Recently two new plants have also been cleared by government for about 1,320 MW each in Buxar in Bihar and Khurja in UP. Definitely some planning is there in the pipeline and once the relevant approvals take place, those definitely will come into construction and the order books of BHEL and other suppliers would start looking up.

What would be your message to investors who have languished in terms of return expectations in power sector? 

Power companies are bound to do well. Without power, there is no development. Government has invested in the distribution infrastructure through Deen Dayal Upadhyaya Gram Jyoti Yojana as well as Saubhagya and now we are working on smart meters and metering of the whole system and bringing in smart grids to check losses to tell discoms to become more professional, because that is the paying end of the power sector. 

Demand is there, per capita consumption is one-third of the world average and within the country, we have so much of variation starting from Gujarat to Bihar and all. There is a scope for use of power and we are a developing country. If GDP grows at 7-8 per cent, definitely power is one of the important factors. We need to grow at 6 per cent plus. From where this growth will come? 

The renewables will grow definitely but we need to balance this energy and shareholders should not be worried about their investment. Any industrial activity always has ups and downs. There was a glut of capacity which has led to certain stress but gradually, these capacities are getting addressed. 

Demand from the state is coming up. Long PPAs may not have come but we are hearing that some states are interested in that also. So, Shakti policy applications are now coming up for even long-term purchase agreements.

It will take some more time to fructify but nothing is looking dark in future rather it is looking very bright as far as power sector is concerned.