The Hindu Business Line : Tata Power willing to put in Rs 10,000 cr in distribution, generation

IN his first interaction with the press more than a year ago, Mr Firdose Vandrevala, then Deputy Managing Director of Tata Power, said little. He was a `Steel' man, he said, referring to his long stint at Tata Steel. Instead, he preferred listening as his predecessor Mr Adi Engineer fielded questions about one of the counry's oldest and still largest private sector power utilities.

But in the last one-and-a-half years as Managing Director, Mr Vandrevala, has proved he is a quick learner. In an interview to Business Line, he discusses Tata Power's strategies at a time when the newly passed Electricity Act 2003 is changing the way business will be done in the power sector and growing competition from some of the largest names in Indian business are proving to be tough competitors.

Excerpts:

Tata Power, which has over 2,200 MW established capacity in Trombay, has announced a string of greenfield projects — the 330 MW Srinagar Hydel Power Station in Uttaranchal, a 1,000 MW plant in the national capital region and a project at Vile in Maharashtra. What is TPC's strategy for generation in times to come?

There are several considerations when you look at a generation project. One is of course the fuel strategy. We will try to maintain a balance between coal and gas. The second is the load centres. Also, we would like to take advantage of cheap power generation, availability of stable transmission lines and opportunities for trading.

Let's look at projects that we have already begun constructing. The 120 MW Jojobera in the North was a marginal expansion as our customer Tata Steel has large expansion plans. Plus, we are doing a transmission link that will allow us to do some trading.

The Uttaranchal hydropower project is a run-up river project. Normal hydro projects like the ones we have - lake reservoir projects have relatively low PLFs (plant load factor). This project will give us a much higher PLF. There is an existing PPA (power purchase agreement) with UP, we are quite comfortable if it stays. If it doesn't we will use this peaking power for Delhi.

Take the project in Vile, Maharashtra, which is a power-deficit State. We can work up logistics for imported coal and put up a good generating unit to serve Mumbai and rest of Maharashtra. When we are granted additional distribution licences, we will have a back-end generating station within the State.

In Delhi, we have a 1,000 MW load growing rapidly at 10 to 12 per cent. So we are looking at various options for fuel for a generation unit. We would like to give Delhi an islanding system like the one in Mumbai is for reliability and continuity of power in case of grid disturbances.

Our DVC (Damodar Valley), Maithon project will be pithead based with very stable (power) prices. With our Tala line and other transmission networks coming up in the country, we believe we should be able to export power and also meet requirements in and around the East.

How much will the investments in these projects add up to? Is the company looking at acquiring existing projects?

Tata Power is willing to put in more than Rs 10,000 crore over next four to five years in generation and distribution. We don't see a problem in raising finance with our debt to equity ratio of 0.55. And we are also looking at acquisitions. Some of the deals are at various levels of discussion. Some are absolutely vague ideas.

Tata Power moved fast in the transmission business with its Tala joint venture with PowerGrid in Jammu-Kashmir. What are the plans for this business?

When you are looking at transmission, there are two segments of the business. One is where we are contractors setting up transmission lines for someone else. That is a contract business being done by our Power Systems Division. The Jammu-Kashmir line comes in that category. That is a growth area in terms of our EPC business.

The other is where we own the line. Which is where Tala comes in. We own 51 per cent in the Tala transmission line (400 kV line transmitting power from Tala Hydro project in Bhutan to India). At this moment of time we don't see very large growth in this for Tata Power.

Tata Power has asked various State Governments for joint ventures with SEBs for distribution in certain circles. What is your strategy for this business?

In distribution we would like to play a larger role. The whole distribution sector needs to be restructured. One of the problems we have had in the reform process 10 years ago was that we should have reformed distribution rather than generation. Now 10-odd years later with the Electricity Act, what have we done? Generation: delicensed; open access in transmission: done. Distribution: lot of statements, lot of enablers, but no real action.

So I would like Tata Power to play a larger role. Rather than just be a consultant, we are willing to participate. We did it in Delhi. So my recommendation has been with all the State Governments that let's follow the Delhi model, where the Government still has 49 per cent stake.

The Delhi model had some estimates of distribution losses and a commitment to reduce them over a period of time. And it had a band. You perform within the band you get returns. If you are below that performance band, you suffer. Half the money goes back to the customer the other half the company keeps. Half of the company belongs to the Government.

From a consumer point of view, governance point of view, it is a good model. I see it not just as a business opportunity but as a national cause.

But that is as a consultant. What are you looking at as an investor? Which are the States where you see opportunities in distribution? Is there resistance to these reforms?

We are in talks. And the States that have shown interest include Karnataka, Andhra Pradesh, Maharashtra, Uttar Pradesh and Gujarat. There has been a dialogue with Rajasthan but nothing concrete has happened.

The resistance is more fear of the unknown. Obviously, resistance is from those who are in nexus with SEBs; they see us as a threat in terms of loss of income in inverted commas. From the Government point of view, it is one of governance: that you are giving up control.

Will abundant availability of gas through LNG import terminals and indigenous gas finds change the electricity business?

If we really want revolutionary changes in the power sector, they will have to be at the distribution end. Once things settle down after elections, it will be time for both the Centre and the State to start the reforms - the real reforms. Otherwise again we are going to have a lot of capacity coming up and you are back to the IPP model... Gas or coal, how does it matter?

There was news about you signing an MoU with GAIL for the Dabhol acquisition. Was that not something decided on two years ago? Is there any news on the sale process?

Yeah, we have been in dialogue with GAIL India for two years. Just that the GAIL board endorsed it last week. We will now sign a formal memorandum of understanding. BP with its LNG sourcing and LNG expertise, we with our power expertise and GAIL with gas distribution. So complementary skills and experiences are being brought together.

Whether things are moving for the DPC sale process? Yes and no. OPIC came, they've held dialogues. Rothschild has been working on it. The issue is for stakeholders to come to some sort of agreement between themselves. Transfer of ownership will not solve the problem. Some shaving will have to be taken by the equity holders.

And we need to have somebody who will try and sort of make that happen. An independent party, whom lenders, equity holders can trust on the restructuring process. If that can be done we will probably see a faster resolution of the problem.

How do you see the power trading market maturing in the short term?

With the Government investing in strengthening inter-State transmission there is a lot of scope for trading. We have formed a subsidiary and applied for a licence. That should be done in a month's time. Hopefully, we should be the first to get the licence.