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Mr. Ravi Arya, President- Commercial and Business Development for Thermal Business, Hindustan Powerprojects Pvt Ltd

14 May 2015

‘India is not ready to propel its growth without Coal’

Ravi Arya, President- Commercial and Business Development for Thermal Business at Hindustan Powerprojects Pvt Ltd, has over 3 decades of rich work experience in the industry. Arya talks about the challenges that power generation industry faces at this point in time and also Hindustan Powerprojects’ future plans. InfralinePlus spoke to him on range of issues that affect the industry. Excerpts...

Considering uncertainties in coal block allocation and challenges on availability of fossil fuel. There seems to be delays in coal block auctions thereby adversely impacting the operations of thermal power units across the country. How do you see the future of thermal power sector in India?

There is absolutely no doubt that the country needs power to achieve the growth it has targeted for itself. Further, if you compare per capita consumption of electricity in India, it is too low vis-a-vis other emerging economies. We have a long way to go to be able to realize the vision of “electricity to all”.

Unfortunately, in recent past there have been challenges at multiple fronts be it coal block auctions, power purchase agreements, issues in transmission or financial duress on distribution companies. As the coal scam unearthed, it had an adverse impact on the entire thermal power generation. Projects were getting stalled, banks and financial institutions were getting over apprehensive and were reluctant to make further exposures.

However, the new government deserves the credit to address the concerns on fast track basis to revive the sector. We have not seen such a fast action to diffuse the logjam in power generation and supply sector before this.

Do you foresee any solution in the coming time soon ? There are issues surfacing even as private companies have bid for coal blocks.

We do understand that there are issues in coal block allocations due to very aggressive bidding. The companies have put in their efforts and invested heavily but are not able to mine coal immediately. It is a fact that these are challenges which will be there and one has to live with such issues. However, the industry hopes that after the auction process is over, coal will be made available. I personally have been part of few meetings, where we have witnessed that the government is meticulously planning to iron out all the issues that may hamper the availability of coal.

The Government has chalked out very ambitious plan of ramping up the domestic coal production to 1 Bn Tonnes per annum by 2019-20. Even if we are able to achieve 70 to 80 percent of this target, we should be able to provide fuel security to a larger capacity addition catering to increased demand. This would go a long way in reduced dependence on imported coal thereby accruing precious saving of forex for the country.

The coal sector in the country has been controlled by Coal India Limited for long, which has created more issues than solving them. Allowing commercial mining by private companies on a larger scale may bring in competition but would also increase issues within the industry. How do you see this scenario?

We believe that monopoly does not help anybody. Neither would it help the consumer nor support the market. Such monopoly also leads to complacence thereby affecting the operational efficiencies. The current process of coal block auctions is transparent and provides equal and fail opportunities to all stake holders. Once the auction process is over – more coal mines will be developed through private investment giving more avenues for supply of coal for power generation.

Competition not only helps the consumers but also necessitate industry to improve itself to be able to provide deliverables at competitive rates with margins intact. We believe that the current policy would help the industry move in the right direction.

But in the process companies did win few Coal blocks, but there is a delay in awarding licence to mine. So, companies are not able to mine coal even as they have won ownership of coal blocks.

Whenever a new process starts, there are initial hiccups which eventually gets sorted out. Now what we need to ensure collectively is that that implementation of policy should not be compromised. We all, as part of the power sector, should do our bit to properly implement what we have been assigned, rest everything else will fall in line.

How would you align yourself with the government’s focus of encouraging companies to go for clean energy generation? Is investing in thermal prudent?

For the developing country like ours, we need a lot of power on immediate basis. It is easy for countries like the US, Canada or European nations to talk of clean energy, but the country like India has to first reach to that level of industrialisation which will have to be propelled by coal because of its easy availability as compared to other resources.

Clean energy is a great initiative but it can’t replace coal. It has to go concurrently. We need to develop both the resources. We can’t do away with coal as we need power on immediate basis and we are fortunate to be blessed with coal resources which would keep us going for the next 50 years.

Kindly give us an update on Hindustan powerprojects Ltd. The current projects and future course of action.

Hindustan Powerprojects Ltd is operating in Thermal, Solar and Hydro. In thermal – our flagship project at Anuppur (Madhya Pradesh) is 2520 MW. The Phase 1 (2 X 600) is functional, while the Phase 2 (2 X 660) would also be operational in the next 3-4 years.

Then we have one project in Chhattisgarh for which we intend to participate in coal blocks bidding. For that project, we will require coal in the next 4-5 years, so we will participate for coal blocks which have similar prospects in terms of coal production.

Have you tied up for sale of power from Anuppur plant. What about coal linkages. Are you totally taken care by Coal India subsidiary or do you depend on outside buying too to meet the demand.

We have got coal linkage from SECL ( South Eastern Coal Limited, a subsidiary of Coal India Limited) which would meet the coal requirement of our Anuppur Project to a fair extent, the balance requirement may be met from the open market. For meeting the coal requirement for our planned capacity addition we would take the business decisions as per the extant government policies.

For sale of power from Anuppur Plant, we have tied up almost 70% power through long term PPAs. We are on our toes to tie-up the remaining capacity and have been participating in the various market opportunities.

But there have been reports where states prefer load shedding to buying power. How relevant are these power purchase agreements?

For bringing the power sector back on track, the first and foremost factor is to improve the financial health of bleeding power distribution companies. Once the self-sustainability of these distribution companies are ensured, the entire value chain including Generation & Transmission will automatically improve.

Most of the distribution companies today are incurring substantial loss on every unit of electricity sold. Thus to minimize the absolute losses, such distribution companies are largely resorting to under-supply of electricity and hence declaring suppressed demands, through increased load shedding.

Unless such distribution companies are made self-sufficient through improving operational efficiencies, reducing technical and commercial losses and maintaining and equilibrium between power purchase costs and supply tariff, it would be extremely difficult to achieve the objective.

Another reason for the poor health of discoms is the skewed tariff rates especially for the segments whose tariff does not even cover the power purchase and distributions costs. Though the government does subsidize power to such segments like agriculture, irrigation etc, the subsidy is not always available readily, which further increases pressure on discoms. So, the crux of the matter is to improve financial health of distribution companies.

Are there plans to diversify?

Yes, we are thinking of both forward and back ward integration. While we plan to secure fuel supplies through coal block acquisitions, we are also contemplating to enter into power transmission business. Distribution is not something that we plan to enter immediately.

As an integrated power company is there any mix between thermal, solar and hydro that you plan to maintain?

Ideally the mix between thermal and hydro should be in the ratio of 60:40. While, the base load should come from thermal unit, the peak load may be met through Hydro.

But unfortunately, there have been delays in completion of hydro projects including natural disasters. Also, the hydro projects have longer gestation periods and take about 8-9 years to be operational, while for thermal this time frame is about 4-5 years. So, our current mix is about 80:20, which is not an ideal situation to be in. As such, we should harness more hydro generation not only within the country but also from our neighbouring countries like Bhutan and Nepal etc. to address these concerns.