According to reports, Tata Power, the country’s largest integrated power producer in the private sector with 8500 MW in generation alone, finds the present economic climate none too conducive for growth or expansion.
The company is scouting overseas to further its prospects in generation and distribution where opportunities and reasonable returns with lesser risk are assured.
In a chat with Business Line, Anil Sardana, Managing Director, Tata Power, outlined his strategy, while candidly expressing the need for measures that will put the domestic power sector back in the reckoning.
What do you see in store for the power sector in generation, transmission and distribution for the near term?
I think people will work on what they have in hand. Other than renewable energy, where people will look for opportunities, I doubt whether anyone will engage in new projects or opportunities.
Similarly, anything new in distribution is ruled out given that the general elections are due in 2014.
Does it include tariff hikes?
Going by the Shunglu Committee’s harsh observations on the State electricity regulators, perhaps one might see cosmetic increases in tariff to the extent fuel prices have risen so that State Electricity Boards (SEBs) do not go down further.
What about SEB reforms?
This word ‘reforms’ has been reverberating in the power sector for over one-and-a-half decades. However, it is apparent that it means different things to different people. For some it is more to do with APRDP (Accelerated Power Development and Reform Programme). For some others it could mean sub-division of generation, transmission and distribution. It appears that it is being looked at at a myopic level. None have ever said their financial health should improve.
I feel reform in the true sense means to see everything from the customer perspective – how a customer would see improvements in power supply, infrastructure and distribution. I have never heard anybody in this country talk of what is good for the customer and we should do that from tomorrow. There has been no talk on how electricity tariff would move over the next five years. The customer focus is absent.
When Tata Power says there has been a reformation in Delhi distribution, we mean customer gets reliable supply and customer service. There is a penalty we bear if we are not able to deliver services within a time-frame. If the bills are not accurate and we do not correct them in 48 hours we will pay a fine on our own. These are what we believe are customer reforms.
When do you see the reforms happening?
The Centre has a role in terms of policy and being a concurrent subject the States have a role in terms of implementation. Unfortunately, they do not speak the same language. There is no common thread, which speak of liberating things for customers or reducing cost of delivery or securitising energy for the long term. My sense is we are still miles away.
What should be done immediately to revive SEBs finances?
I still do not see the rationale of government being in the distribution business. I always feel government should be the biggest spokesperson for consumers. The governments of the day should use their authority to get different players to perform. If they themselves are in the business how do we expect them to differentiate between protecting customers’ rights and making others perform, because they themselves are not performing?
The government should offload the SEBs, monetise whatever they have to, and then demand service.
Similarly, the State electricity regulatory framework is always open to political pressure as the members come from the same hierarchy. Much like the grid system which is operated at the regional level, the state regulatory system should be shifted to the regional level.
The regional heads should work out the concepts of bulk purchase, service level agreements and tariff based on the aggregated annual revenue requirement. If any State wants to provide a lower tariff to a particular section they can transparently do so by making up for the shortfall in their budget.
With this, there will be an annual review and no political influence. Service-level agreements can be enforced without linking to the purchase price of power. More importantly, regional regulators can also enforce discipline.
What is Tata Power’s focus now?
We are focusing on international geographies. We feel the issues with respect to capacity addition in generation or distribution is not happening systematically or in significant numbers here.
There are countries which say they need investment and are willing to provide opportunities and reasonably good returns at lesser risk.
We went around and made a complete study of close to 115 countries. Following this, we divided our target geographies into four regions – Africa, Middle East and Turkey, India and SAARC and South East Asia and ASEAN.
Instead of having a debate on prospects, we positioned our internal stakeholders for all four. We have set up teams for each of the regions and said those who get the project licences and all clearances, which includes land, we will invest.
As of today, we are already ahead in Africa, where projects have started to roll out and also partly in Turkey and Middle East region.
Is it generation or distribution?
Mostly generation and distribution in terms of management consulting and association with local stakeholders for improvements.
What about your petition filed with the Central Electricity Regulatory Commission seeking tariff revision for the 4000 MW Mundra plant?
We need to wait. The CERC chairman said they would come out with the order in mid-March. At Mundra, we have done all we could. We are blending coal and trying to get the fuel coal from US and Columbia.
The issue I would like to emphasise is that when you have 4 GW at one place and the coal off-take so high, it tends to disturb the price regime in the market.
Our trouble is our large requirement. Many people feel that the change of law in Indonesia should not weigh us down and that we can get coal from elsewhere. However, they fail to understand that the quantity is so large that you cannot get it. That is the reason we invested in the mines in Indonesia. But for the change of law we would not have gone to anybody. We have built a plant and were consciously clear that we had a fuel supply contract that would serve the lifetime of the project.
We could have stopped the project midstream, but then it would be the bankers who would be in pain. More importantly, that is not the way we work.
You discontinued supply to a couple of Rajasthan SEBs, what happened after that?
In fact, it is a mockery of the provisions of the power purchase agreements. It was done because they did not establish the payment security mechanism which comprises a letter of credit, escrow account and a pari-passu charge equivalent to the escrow. We issued a termination notice after serving 27 notices seeking the payment security.
However, we were never allowed to terminate supply as various arms of the government got together to ensure that the supplies were not diverted.
Here, there is a message for the industry. The supply termination clause has no meaning. You cannot sever supply whether SEBs make payments or not and you also cannot divert supplies to a third party.
What is the situation now?
They have provided the LC and escrow and are in the process of establishing the pari-passu charge.