SBI gives blueprint for Rs. 50,000cr power fund

India's largest lender, State Bank of India, has submitted details of the proposed power sector fund, which is likely to be set up with a corpus of Rs. 50,000 crore for reviving stalled power projects in the country. It will also help recover thousands of crores worth of banking sector funds that are stuck in such projects.

According to the concept paper worked out by SBI, a copy of which is available with HT, the fund would have 49% contribution from power sector PSUs, with the balance coming from banks and foreign investors.

"The fund would provide equity support and undertake some debt restructuring," said the minutes of the October 17 meeting, quoting SBI chairperson Arundhati Bhattacharya.

The meeting was held at SBI's head office in New Delhi and attended by senior officials of the finance and power ministries, along with heads of banks and financial institutions including SBI, Punjab National Bank and India Infrastructure Finance Company Ltd, besides the Asso­ciation of Power Producers (APP), which represents the country's top power companies.

The proposal of the fund was first mooted in June soon after power and coal minister Piyush Goyal had taken charge and met the bankers on power sector issues. SBI was asked to work out the finer details.

"The government is looking at options by which it can become feasible for banks to fund long-term projects, which include power as well. At present, there are a few issues that concern banks and these need to be addressed for speedy financing decisions," a senior SBI official said.

Private sector companies have contributed significantly to the installed capacity in the power sector during 2007 to 2012, with their share rising to 67% by August 2014 from 55% in 2012.

State-run power sector financial institutions including Rural Electrification Corp, Power Finance Corp and cash-rich companies such as NTPC, along with various public and private sector banks, are likely to contribute to the corpus of the fund, officials with knowledge of the proceedings said.

"As much as 136,000 MW of capacity, out of India's total installed capacity of 254,000 MW, involving an investment of over Rs. 6.23 lakh crore, has been added by the private sector," according to a presentation made by the APP during the October 17 meeting. "The capital charge on the investments (by the private sector) is about Rs. 90,000 crore."

Fuel shortage, high coal import prices, a depreciating rupee, delays in land acquisition, transmission bottlenecks and poor financial health of distribution companies are some of the issues plaguing the power sector. Besides time and cost overruns, the projects are also facing funding constraints. This has resulted in higher non-performing assets (NPAs) - loans that do not yield returns - for banks, besides affecting economic growth and the overall investment climate.

High cost of alternative fuels and the reluctance of discoms to procure power have resulted in substantial decline in revenues of power companies, leading to cash flow issues. The high construction risk is keeping away new investors and project developers are finding it difficult to manage long-term contractual obligations.

Toshiba to invest $30 mn to expand power business in India

Japanese firm Toshiba Corp. will invest about $30 million for expanding its production capacity in the power transmission and distribution business in India.

 The investment is part of the company’s plan to invest $100 million in Indian power sector by 2016. “Toshiba Corp. will reinforce its transmission and distribution (T&D) business in India with a 3 billion yen (approximately $30 million) investment in new production capacity at Toshiba Transmission & Distribution Systems India Pvt. Ltd (TTDI) in Hyderabad,” the company said in a statement. “India is a high-growth market that Toshiba has positioned as a strategic base for its power-related businesses.

 “In the period to FY16, Toshiba plans to invest a cumulative 10-billion yen (approximately USD 100 million) in its T&D business there, including this current round of investment,” said Katsutoshi Toda, CMD, TTDI. “Toshiba is seeking to secure a 20% share of the Indian market by 2018, and also reinforce TTDI as a core T&D production base for other major markets, including Europe, ASEAN, and Africa,” Toda said. A new facility for large power transformers will come on line in 2015 at Hyderabad at the same time as the full scale launch of a new unit for switchgears.

 Alongside its existing production line of small and medium capacity transformers and low and medium voltage switchgears, the new power transformer line will support production of 765 kV (kilovolt) transformers with a capacity of 500 MVA (mega volt ampere), while the new switchgear line will produce high voltage products. Toshiba established TTDI in 2013 by acquiring T&D business from Vijai Electricals for 20 billion yen or approximately $200 million, and also started operation of a new power transformer facility in Russia in February 2014

Narendra Modi finds a reform partner in Suresh Prabhu

New Delhi: Suresh Prabhakar Prabhu, who was sworn in as a cabinet minister on Sunday, is remembered for ushering in reforms in the Indian power sector when he was part of the Atal Bihari Vajpayee-led National Democratic Alliance (NDA) government. 

The 61-year-old Prabhu, a former member of the Shiv Sena, joined the Bharatiya Janata Party (BJP) on Sunday to take part in the next set of reforms as promised by the Narendra Modi-led NDA government. 

Described by many of his colleagues as “intelligent, focused and result-oriented”, Prabhu, a four-time member of Parliament from Rajapur constituency in Maharashtra, has been heading the advisory group for integrated development of power, coal and renewable energy. Prabhu is Modi’s sherpa— the senior official who helps prepare the agenda for leaders—for the upcoming G20 summit and is well versed in the grammar of governance. 

“He pushed through two things—the Electricity Act of 2003 and securitization of dues from the states. This has been his landmark contribution to the Indian power sector,” said a former secretary in the Union government who had closely worked with Prabhu. Prabhu was a minister in the Union cabinet for six years where he handled portfolios such as industry, environment and forests, chemicals and fertilizers, heavy industry and public enterprises and power.

 India allows 100% foreign direct investment (FDI) in the power sector, and the Electricity Act 2003 opened significant opportunities for private sector investments. The landmark Act also provided for non-discriminatory open access in the transmission segment and mandated State Electricity Regulatory Commissions to introduce open access in distribution after taking into consideration state-specific conditions. 

While several amendments to the Act are being considered now in tune with the times, many including petroleum minister Dharmendra Pradhan have lauded it. “In Atalji’s (Bihari Vajpayee) government, a new Electricity Act was brought in and after that power generation capacity increased in the state and so did private sector investments. That was a very transparent and progressive step,” Pradhan had earlier told Mint. Of India’s current capacity of 254,049.49 megawatts (MW), 36% or 90,903MW is operated by the private sector. 

Prabhu, who headed the task force for interlinking of rivers, was also the chairman of the Maharashtra State Finance Commission, Saraswat Co-operative Bank and member of the Maharashtra Tourism Development Board, and has been lauded for the settlement of outstanding dues by the state electricity boards (SEBs) which helped in saving the state-owned utilities from financial collapse. He was also instrumental in the implementation of the landmark tripartite agreement which allowed the Union government to recover the amounts due from the states by deducting them from central devolution.

 Interestingly, many distribution utilities are now saddled with losses arising from theft, besides transmission and billing inefficiencies. State electricity boards with debt of Rs.3.04 trillion and losses of Rs.2.52 trillion are on the brink of financial collapse. His initiatives at the power ministry included electricity for all by 2012, the Electricity Bill of 2001, accelerated power development programme and rural electrification.

 “He has a knack for working diligently and quietly,” added the former government official cited above. Another person who has worked closely with Prabhu as part of his advisory group which has held around 20 meetings said, “A lot of us have told him that he was the right person in the wrong party. Now, since that has been taken care of, a lot is expected out of him. 

He has been the architect of the Indian power sector reforms and was instrumental in opening up of the electricity generation and distribution sector. Had he continued, he would have revamped the sector. He will be holding an important portfolio, given his track record. ” 

The advisory group headed by Prabhu has already submitted two reports on the coal and electricity distribution sector to Piyush Goyal, minister for power, coal and new and renewable energy. This comes in the backdrop of the Supreme Court’s landmark September judgement that cancelled the allocation of more than 200 coal blocks between 1993 and 2010 and provided the government an opportunity to make a fresh start and put in place a transparent rules-based regime in the allocation of coal. “There is a lot of mutual respect between the minister and Prabhu.

 What distinguishes him from the others is his ability to drive consensus and being incisive. Also, not having a private agenda makes him credible,” added this person. Prabhu, who holds a bachelors degree in commerce and a degree in law from Mumbai University, is a qualified chartered accountant and is involved in nine strategic dialogues. He is married to Uma S. Prabhu, a journalist.

CERC to soon review functioning of power exchanges

Power sector watchdog CERC plans to review regulatory compliance levels and operational efficiencies of the country's two electricity exchanges as part of efforts to safeguard the interest of stakeholders.

Indian Energy Exchange (IEX) and Power Exchange India Ltd (PXIL) are the two functional electricity bourses. Both began their operations in 2008.

Under the planned comprehensive 'health check' of the bourses, the Central Electricity Regulatory Commission (CERC) would review a slew of factors, including related party transactions and nature of relationship between promoter and the power exchanges.

To carry out the review, CERC has recently sought bids from interested entities.

"The period of the review/investigation will be FY 2012- 14 (except related party transactions which would be examined since inception of power exchange)," CERC has said.

CERC plans to "undertake review of the overall regulatory compliance to (CERC) regulations, the robustness of operational processes, the control and checks placed by the power exchanges to ensure business continuity, safeguarding public interest and absence of any untoward systemic risk".

The review would also cover the nature of commercial relationship between present trading system technology provider with the power exchange; monetary flows between the bourse, its member and their clients; processes in place to maintain bid data confidentiality and market surveillance, among others.

Elaborating on the mechanisms in place at these bourses, CERC said the exchanges have constituted a Market Surveillance Committee headed by an independent director.

"The committee shall submit quarterly surveillance report to the Commission. The power exchange shall also carry out periodic IT system audit for data security, date integrity and operational efficiency and submit its report to the Commission annually. However, this has not been done since 2011," the regulator has said.

In six years since their inception, power exchange business has seen good growth. These bourses offer day-ahead and term-ahead market products besides trading in renewable energy certificates.

Indian Energy Exchange (IEX) is the leading bourse with more than 95 per cent market share and billions of units of electricity is traded every month on it.

Indian power sector looks at saving INR 6,000 crore in coal transportation

Economic Times reported that the power sector is heading for a INR 6,000 crore, saving in coal transportation cost and earnings of another INR 3,600 crore by additional generation as the government plans to tweak fuel supply arrangements to ensure that coal from each mine or port is shipped to closest plant.

Currently, a lot of imported coal travels deep inside the country while some domestic output is transported to plants on the coast, which inflates the price of electricity.

Further, many power companies get fuel from a mine far away even if coal is producec much closer to the plant. The proposed changes would affect nearly half of India's tota power generation capacity.

In some cases two plants will simply swap the coal suppliers, while in other cases the supply adjustments would involve many plants.

Government sources said said that the government had appointed KPMG to assess the benefits of reorganising fuel tie-ups. The global consulting firm has estimated savings in the range of INR 4,500 crore to INR 6,000 crore in logistics as the distance between the supplying coal mine and the plant would come down by 27%.

It has also estimated that this would lead to additional generation from 3,500 MW of capacity with potential benefit of INR 3,500 crore.

The rejig of fuel supply pacts would come as a blessing for the power sector, which is reeling under acute fuel shortage and reluctance of main buyers, the state distribution companies, to buy power that it finds costly. The government has already issued an ordinance to auction coal blocks and has plans to ensure better fuel supply for gas-fired and coal-based plants by blending imported and locally produced fuel.

Government officials said that increase coal supply is on top of their agenda.

Mr Piyush Goyal, Power, Coal and Renewable Energy Minister, said that the fact that different companies supplying coal are subsidiaries of CIL, would help restructure the supply pacts, and this was a reason why the state-run giant was not being split.

The KPMG report, submitted to the power ministry, said that the exercise will also decongest the railway network as the average distance travelled by coal will come down to 429 kilometer per tonne from 589 kilometer per tonne and hedge coastal power projects against any interruptions in supply in future.

Power companies are incurring huge costs on importing coal and transporting it to plants in hinterlands, while projects on the coast get coal from far-off states. The consultancy has advised the power ministry to bilaterally swap coal supplies of 32 power projects of 45,000 MW capacity while multilateral swaps have been recommended for 95 power stations of 74,000 MW capacity.

Meanwhile, the proposal would require nod from power companies including private firms, states of Gujarat, Tamil Nadu, Maharashtra, Punjab, Haryana and Rajasthan and electricity regulators.

Source – Economic Times