The Hindu Business Line : `Open access system crucial for power sector reforms'

THE Hyderabad-based Lanco group, which entered the power sector by establishing a 368 MW gas-based power project at Kondapalli in Andhra Pradesh, plans to invest Rs 3000 crore by 2007 on setting up power plants in various parts of the country.

The group is also foraying into all aspects of the electricity businesses including trading, transmission and distribution besides power generation. It has already applied for licence to undertake power trading.

Apart from the power unit in Andhra Pradesh, the group has entered into neighbouring Karnataka, Tamil Nadu and Chhattisgarh. It is pursuing plans to enter Uttaranchal, Himachal Pradesh and North-Eastern States. In a joint venture with the ABAN group, Lanco is setting up a 120 MW gas-based power unit in Tanjore in Tamil Nadu at a cost over Rs 400 crore. It is also setting up a 250 MW coal-based power plant at Korba in Chhattisgarh. The coal-based plant, Lanco Amarkantak, is estimated to cost Rs 1,125 crore.

After cement, steel, telecommunications and roads, the next one to open up in the country is the power sector. "I am sure that this sector will open up irrespective of whichever party forms the Government at the Centre", Lanco Kondapalli Managing Director, Mr Y. Harish Chandra Prasad, told Business Line in an interview. Excerpts:

What will be the power sector scenario following the passage of the Indian Electricity Act?

I think there won't be much change immediately because there is no open access available as on today. Still we have to depend on power purchase agreements (PPAs). One can see the results of the Electricity Act only when the open access system comes into existence. Even for trading of power we need open access. So, the crux of the matter is open access for the power companies.

When do you expect open access system in the power sector?

According to N.K. Singh Committee draft report it will come into existence in a span five years. But I have my doubts about the States implementing the system within the next five years. Electricity being a concurrent subject, the States play important role.

Lanco group is stated to be currently focusing exclusively on the power sector and is planning to establish a string of power plants. What are the reasons?

It is a natural course that we are following. We have the Kondapalli plant which is 368 MW. Later we have set up two biomass plants in Andhra Pradesh. Now we are setting up a 120 MW gas-based plant in Tamil Nadu and a 2 x 250 MW plant in Chattisgarh. With regard to hydel power generation, the group has targeted to set up plants at various locations in Uttaranchal, Himachal Pradesh and Northeastern states. Our balance sheets are getting bigger and bigger day by day. So we thought we should invest more on power projects.

What will be the capacity addition and what is the estimated outlay of the proposed power plants?

By 2007 our investments will go up by another Rs 3,000 crore. The capacity addition will be 500 MW. Following the execution of these power plants, Lanco group will have a total generation capacity of 1000 MW.

Are you entering into any financial tie-ups for setting up new power plants?

We have our strategic partners. We are also looking at new partners. We are also looking at debt funding in the range of 70 per cent to 80 per cent from Indian institutions. The group is also exploring financial partnerships from companies based in the West Asia and US.

How is the profitability in the power sector?

Profitability is not much. But the volume of business is high.

Has your tie-up with reliance gas supply through?

No. It is still at the MoU stage and we have not signed the agreement. The MoU had expired recently and we have got it extended. As the tie-up is not through, the Stage II of the Kondapalli power project has not been started. The stage II of the project envisages a capacity addition of 368 MW to 730 MW. The investment will be of the order of Rs 1000 crore if the capacity expansion is only 368 MW.

What is the reason for the delay?

I don't know. We are willing to sit and discuss, but they are not coming forward.

What is the cost of the power plant in Tamil Nadu?

That is over Rs 400 crore. It is being set up in a joint venture with ABAN group, which has a 26 per cent stake in the project. Lanco holds the remaining 74 per cent stake. The gas-based power project is nearing completion.

When are you undertaking the power trading?

We have already applied for license from the Central Electricity Regulatory Commission.

Why are you going in for wind power project? Is there good potential for such projects in the country?

We have a 3 MW wind power project in Karnataka. Some of our companies are in construction business. We want to invest on wind power projects through these companies as a sort of tax shelter. There is not much of a potential for wind power in Andhra Pradesh. Tamil Nadu is the best place for such projects.

When do you think that the country will be surplus in power generation?

The existing demand for power in our country is a suppressed demand. The more power you produce; there may be more demand for it. Our per capita consumption of power is only 400 units per annum whereas in developed countries or even in a developing country like Malaysia the per capita consumption is 1,700 units. The per capita consumption of power in a country like Saudi Arabia is 10,000 units. So, there may not be surplus power. Along with the availability of power, the demand may also rise.