The Government has introduced reforms to boost the power sector. But, whether it will give a new lease of life to the sector, where investments have come to a standstill, remains to be seen. The private power companies want issues related to financial viability of existing competitively-bid projects to be addressed. Vinayak Mavinkurve, Group Head (Project Finance) at IDFC Ltd, talked to Business Line about different options to get sector moving. Excerpts:

Will reforms improve the investment climate for the power sector?

Investment in any sector is dependent on the risk-reward balance. The energy sector has been marred by several events such as the issues surrounding coal block allocation, the breakdown of the northern grid, congested transmission corridors, shortage of fuel (coal and gas), bid projects approaching statutory and regulatory forums to address financial viability, and the continued loss-making in distribution companies.

Does it mean that funds flowing into greenfield power projects will continue to be less?

These issues have had a major impact on the sector leading to investment standstill. Considering the order book of BHEL as the proxy for investments in greenfield projects in India, the equipment order inflow of BHEL in 2011-12 was Rs 22,000 crore, down 64 per cent compared to Rs 60,000 crore in 2010-11. However, the order inflow for BHEL has subsequently improved in 2012-13 to Rs 31,000 crore.

What policy moves do you think would help the sector?

Some policy moves are being made to facilitate generation in power plants. We have to quickly move towards a semi-regulated model from the existing competitive model, wherein the cost recovery is ensured with a suitable regulatory mechanism and projects are bid out based on efficient completed capital costs and operating parameters. The existing competitive model has been criticised for not factoring in mechanisms to handle persistent fuel shortages. We need to suitably address issues related to financial viability of existing competitively bid projects suffering due to the shortage and cost of fuel with suitable regulatory intervention.

How do you judge the coal supply scenario?

Demand for coal is expected to rise to 1,100 million tonnes in 2016-17. Given Coal India’s poor track record, imports are expected to increase to 200-250 million tonnes. However, the future of coal imports may be uncertain; reports have emerged that Indonesia, one of the main exporters of coal to India, has limited its coal exports to ensure sufficient domestic power generation. Altogether, imports may be short in supply plagued by global political and policy uncertainty and more expensive.

Who will benefit from the Centre’s decision to allow pass-through of expensive coal prices?

We think the key beneficiaries would be Adani Power (Tiroda, Kawai), Jaiprakash Power Ventures (Bina Power), India Bulls Power (Amravati, Nasik), and Tata Power (Maithon project). NTPC too is likely to benefit as this would improve visibility on plant availability factor for their projects commissioned post 2009. However, the critical factor here would be acceptance of state utilities to pay for higher marginal cost of power.

Do you think this is a long-term solution?

Project developers have very limited control on cost of fuel and they face a huge financial risk due to volatility in fuel prices.

What do you think can be done to run gas-starved power plants?

Government needs to consider pooling of imported gas for all users and increasing the quantum of supply so that the existing units get better capacity utilisation and new projects are allocated with gas supply. Second, the power sector should be given first or equal priority in gas allocation as compared to fertiliser sector. Third, existing domestic gas, which is being supplied to non-core sectors should be diverted to power and fertiliser sector. And last, any new domestic gas find should first be allocated to power and fertiliser sectors.

Government has removed the accelerated depreciation benefit from wind power. How has it impacted investments into wind power generation?

Unless significant policy moves are made, India will not meet the target of having 15 per cent of renewable power on the grid by 2020. We are slowly moving from tax incentive based wind capacity additions to wind independent power producer (IPP) business model. This gradual shift will assist in maturing the wind power sector. Some states have asked wind power plants to curtail generation during certain periods because of cheaper traditional power options, even though the central government mandates the sale of renewable energy. This comes at the cost of consumers, who are cut off from power supply because states are unwilling to pay for the wind energy. To add to this, state utility companies have asked for a portion of the REC revenue from developers and increased transmission charges on wind power plants encouraging even lower wind energy demand.

siddhartha.s@thehindu.co.in

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