Cost recovery crucial for investments in infrastructure, says GE President

Investments in infrastructure space boils down to how much cost is recovered and end price or consumer tariff is the crucial piece here, said Banmali Agrawala, President & CEO GE South Asia.

GE, which is betting big on India’s energy infrastructure segment, feels that “Within specifics of infrastructure, the key is going to be how we are going to pay for it and how we are going to recover the cost of having built it. This essentially boils down to tariffs.”

“Tariffs are going to be the real crucial piece. It is not an easy game we understand that, but this infrastructure that is built needs to be paid for,” he told Business Line .

Though GE is not directly concerned with the end consumer price, it does impact the investment sentiments of the equipment suppliers, if the manufacturers — in this case power sector players — do not go for capacity expansion. In fact, public sector equipment supplier, BHEL has also suffered a strain in its order book.

Agrawala’s argument on tariff is in line with what the power producers have been seeking. The end price should be discovered by the market and not regulated is one stream of argument.

In fact, Power Ministry wants the State regulators to go for periodical electricity tariff revisions to ensure that both the generation companies as well as the transmission utilities do not suffer financial strain. The move will also protect the consumers from sudden steep fluctuations in their electricity bills.

The Ministry, in its presentation for Prime Minister Narendra Modi, has proposed this as part of the next wave of reforms through amendments in the Electricity Act, 2003.

The agriculture and household consumers are sold electricity at much lower tariffs than the commercial users. The Act says that cross subsidisation should be progressively reduced in seven years. The Act came into existence in 2003 and it is 2014 now, but nothing has changed. The Central Electricity Regulatory Commission (CERC) undertakes a tariff revision annually while the tariff determination principles are revised every 5 years.

However, the regulator has only powers to regulate the tariffs of central generating stations as well as for all inter-State generation, transmission and supply of power.

Piyush Goyal, Minister of State for Power (Independent Charge), had told Business Line “I cannot tweak any tariffs. It is a regulated sector and the States are responsible for it. I am certainly responsible for helping increase the efficiency in the sector and help plants operate at a better efficiency…”

The public sector power producer, NTPC, has been pitching for a review of electricity tariffs, as dependent on returns is future investment plans. In fact, NTPC loses more than 20 billion units of electricity annually because of grid restriction arising due to lack of demand. On daily basis for non-summer months 4000 MW is not drawn out. Of this 2,800 MW is power generated from gas as a fuel.

On an average 800-1,200 MW of thermal power is lost due to no demand.

While the public sector power producers remain bullish, private players are stating that investments will depend on how much return they get.

With inputs from Debabrata Das

COMMENT NOW