The recent Supreme Court judgment cancelling all coal block allocations from 1993 till 2010 has hit power companies hard.
In an interview with Benny Antony, Tata Power Managing Director and Chief Executive Officer Anil Sardana discussed the impact of the ruling, the company’s expansion plans in power, including renewable energy, and the future of the Mundra power project.
The Indian power scene has changed rapidly over the last five years. How do you see it five years down the line?
Over the last five years, installed capacity of the Indian power sector has grown from 105 GW in 2007 to 223 GW by 2013. However, the road that lies ahead of us is flecked with innumerable challenges that result from the gaps that exist between what’s planned versus what the power sector has been able to deliver, including deteriorating coal supply at one end of the value chain and poor financial outlook of discoms. This is a matter of great concern, as the buyer of merchandise has to be solvent and efficient, failing which fiscal health of all associates down the value chain will be impacted, leading into a vicious and unviable circle of uncertainty. Going forward, a combination of tariff increases, distribution reforms, open access and enforcement of the ‘obligation to serve’ is required.
You are the country’s largest private power company so far. What are your plans to maintain your leadership as far as installed capacity is concerned?
In an interview with Benny Antony, Tata Power Managing Director and Chief Executive Officer Anil Sardana discussed the impact of the ruling, the company’s expansion plans in power, including renewable energy, and the future of the Mundra power project.
The Indian power scene has changed rapidly over the last five years. How do you see it five years down the line?
Over the last five years, installed capacity of the Indian power sector has grown from 105 GW in 2007 to 223 GW by 2013. However, the road that lies ahead of us is flecked with innumerable challenges that result from the gaps that exist between what’s planned versus what the power sector has been able to deliver, including deteriorating coal supply at one end of the value chain and poor financial outlook of discoms. This is a matter of great concern, as the buyer of merchandise has to be solvent and efficient, failing which fiscal health of all associates down the value chain will be impacted, leading into a vicious and unviable circle of uncertainty. Going forward, a combination of tariff increases, distribution reforms, open access and enforcement of the ‘obligation to serve’ is required.
You are the country’s largest private power company so far. What are your plans to maintain your leadership as far as installed capacity is concerned?
Tata Power today has total operating generation capacity of 8,613 MW, and plans to have 18,000 MW of generation capacity, 4,000 MW of decentralised distribution generation & distribution, 25 million tonnes per annum of energy resources and 10-X growth in value-added businesses by 2022. Tata Power has a series of green field projects in the pipeline for the next few years, both in India and abroad. Some of the projects under development in India include the Dugar Hydroelectric JV Project, the 1,600 MW coastal Maharashtra project, the 1,320 MW Maithon Expansion Project, the 1,600 MW Mundra expansion project and the 1,980 MW Tiruldih Power Project in Jharkhand.
If you have to suggest ways to the government to solve the energy crisis issue of the country. What would be your suggestion?
The need of the hour is to develop a comprehensive national energy security policy which takes into account requirements of all states/UTs. The Indian government would also do well to enter into partnerships with fuel rich countries to meet its long-term energy needs. Regulatory reforms also need to be undertaken to make the domestic coal industry more competitive. Power distribution segment needs significant reform-intervention and a combination of tariff increases and distribution reforms. The commitment of states to support the developers in obtaining clearances, land free of encumbrances, etc is also important.
The coal issue has disturbed the infrastructure industries growth at large. How will this impact the industry?
The domestic power sector has faced a coal shortage with production from Coal India being flat over the last 5-7 years. India needs to create an enabling policy framework wherein use of imported fuels would be dealt with properly specially in terms of its commercial dispensation. Further, the rise in imported coal fuel prices due to regulatory issues in global markets including Indonesia would also need to be dealt lest developers would not create downstream investments here in India to use imported coal.We believe that government should have a national energy security policy.
Do you think that your overseas capacity is likely to exceed domestic capacity soon given the bottlenecks locally? What would be investments for the same and how are you going to finance all of it?
The company is setting up 2,600MW of capacity abroad. In line with the international strategy, we continue to evaluate investment opportunities in Africa, Turkey, Middle East, South East Asia and the SAARC region.
For the next 3 years, the company has sketched out a capex of roughly Rs 2,500 crores per annum.
By when do you expect compensatory tariff for Mundra UMPP to be approved? Would you contemplate exiting Mundra if compensatory tariff is not approved?
The Supreme Court has stayed payment of the compensatory tariff by procurers as was allowed as per APTEL’s interim order of July 22 and has further asked APTEL to expedite the case hearings and take a final decision on the subject matter quickly. As the case is already being heard by the APTEL, we await a quick resolution of this issue through the required judicial process. We are hopeful that the Honourable court will understand our plea and we look forward for a favourable judgment.
The Mundra project has been delivering competitive power despite having under recovery on fuel charges. You have sold stake in one of your Indonesian coal mines and continue to hold stake in Kaltim Prime Coal. Given that the Mundra hike has not been approved, will you look at selling stake in Kaltim Prime Coal to finance your future plans?
Tata Power exited the PT Arutmin Indonesia stake in January this year. The option to sell 5 per cent in KPC and its related power company will provide us the flexibility to raise additional funds to meet current challenges. If this option is exercised, there will be no impact on coal supplies to our plants since we will stay invested in KPC mines to the extent of 25 per cent and our coal supply agreement will continue as it is.
The Trombay plant has been facing technical issues on and off. By when do you expect the whole issue to be solved?
The peak load of Mumbai was 3,217 MW in 2013, as against the embedded generation capacity of 2,300 MW. The remaining power requirement gap is usually bridged by importing power to the city via Tata Power’s transmission network. Mumbai will always remain constrained on its transmission system and it is difficult to bring lines into Mumbai which will carry additional power, as it is landlocked. An integrated system needs to be at work to protect Mumbai from load shedding in future. The transmission system will remain constrained and therefore in order to meet the increasing demand of power, Mumbai must have its own source of generation.
What is your view on the recent court ruling on the cancellation of coal blocks by the Supreme Court? Two of your blocks have been cancelled as well. The cancellation of the coal blocks is going to affect the power sector as far as domestic fuel availability is concerned. Now, the auctioning of the coal blocks may increase the fuel cost and, subsequently, increase perpetual unit cost of production. The current tariff mechanism provides fixed tariff and does not allow escalation to cover fuel cost, thus making the projects unviable.
Tata Power had two coal blocks jointly allocated to it, along with other co-allocatees. We understand that the Supreme Court by its order has cancelled all but four blocks. Tata Power is currently studying the order & will discuss the same with Board before having a view point. Tata Power would look forward to opportunities of having a new, legally enforceable framework by which coal blocks could be awarded, perhaps at an early time.
If you have to suggest ways to the government to solve the energy crisis issue of the country. What would be your suggestion?
The need of the hour is to develop a comprehensive national energy security policy which takes into account requirements of all states/UTs. The Indian government would also do well to enter into partnerships with fuel rich countries to meet its long-term energy needs. Regulatory reforms also need to be undertaken to make the domestic coal industry more competitive. Power distribution segment needs significant reform-intervention and a combination of tariff increases and distribution reforms. The commitment of states to support the developers in obtaining clearances, land free of encumbrances, etc is also important.
The coal issue has disturbed the infrastructure industries growth at large. How will this impact the industry?
The domestic power sector has faced a coal shortage with production from Coal India being flat over the last 5-7 years. India needs to create an enabling policy framework wherein use of imported fuels would be dealt with properly specially in terms of its commercial dispensation. Further, the rise in imported coal fuel prices due to regulatory issues in global markets including Indonesia would also need to be dealt lest developers would not create downstream investments here in India to use imported coal.We believe that government should have a national energy security policy.
Do you think that your overseas capacity is likely to exceed domestic capacity soon given the bottlenecks locally? What would be investments for the same and how are you going to finance all of it?
The company is setting up 2,600MW of capacity abroad. In line with the international strategy, we continue to evaluate investment opportunities in Africa, Turkey, Middle East, South East Asia and the SAARC region.
For the next 3 years, the company has sketched out a capex of roughly Rs 2,500 crores per annum.
By when do you expect compensatory tariff for Mundra UMPP to be approved? Would you contemplate exiting Mundra if compensatory tariff is not approved?
The Supreme Court has stayed payment of the compensatory tariff by procurers as was allowed as per APTEL’s interim order of July 22 and has further asked APTEL to expedite the case hearings and take a final decision on the subject matter quickly. As the case is already being heard by the APTEL, we await a quick resolution of this issue through the required judicial process. We are hopeful that the Honourable court will understand our plea and we look forward for a favourable judgment.
The Mundra project has been delivering competitive power despite having under recovery on fuel charges. You have sold stake in one of your Indonesian coal mines and continue to hold stake in Kaltim Prime Coal. Given that the Mundra hike has not been approved, will you look at selling stake in Kaltim Prime Coal to finance your future plans?
Tata Power exited the PT Arutmin Indonesia stake in January this year. The option to sell 5 per cent in KPC and its related power company will provide us the flexibility to raise additional funds to meet current challenges. If this option is exercised, there will be no impact on coal supplies to our plants since we will stay invested in KPC mines to the extent of 25 per cent and our coal supply agreement will continue as it is.
The Trombay plant has been facing technical issues on and off. By when do you expect the whole issue to be solved?
The peak load of Mumbai was 3,217 MW in 2013, as against the embedded generation capacity of 2,300 MW. The remaining power requirement gap is usually bridged by importing power to the city via Tata Power’s transmission network. Mumbai will always remain constrained on its transmission system and it is difficult to bring lines into Mumbai which will carry additional power, as it is landlocked. An integrated system needs to be at work to protect Mumbai from load shedding in future. The transmission system will remain constrained and therefore in order to meet the increasing demand of power, Mumbai must have its own source of generation.
What is your view on the recent court ruling on the cancellation of coal blocks by the Supreme Court? Two of your blocks have been cancelled as well. The cancellation of the coal blocks is going to affect the power sector as far as domestic fuel availability is concerned. Now, the auctioning of the coal blocks may increase the fuel cost and, subsequently, increase perpetual unit cost of production. The current tariff mechanism provides fixed tariff and does not allow escalation to cover fuel cost, thus making the projects unviable.
Tata Power had two coal blocks jointly allocated to it, along with other co-allocatees. We understand that the Supreme Court by its order has cancelled all but four blocks. Tata Power is currently studying the order & will discuss the same with Board before having a view point. Tata Power would look forward to opportunities of having a new, legally enforceable framework by which coal blocks could be awarded, perhaps at an early time.
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