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Licensing norms for power trading should have been stricter, Tantra Narayan Thakur, Chairman and Managing Director, Power Trading Corporation of India

29 Nov 2012

Power Trading Corporation of India was set up in 1999 as a public-private partnership (PPP) with the purpose of developing a commercially vibrant energy market in the country. Its Chairman and Managing Director since October 11, 2000, Tantra Narayan Thakur, will relinquish office next month. He spoke to Pallavi Chakravorty about the power trading scenario in the country. Edited excerpts:

Are you satisfied with the way power trading has evolved in India since 2001?

No, I would have preferred faster progress. We have not gone ahead at the pace that we could have. One of the major reasons is that there are too many controls on trading. I am of the view that once you have started something in order to develop the sector, it should be allowed to function independently, you should let it blossom. You can try to control the market to prevent distortions once it has evolved. But why do you anticipate distortions? They are not real. And this is not healthy.

Apart from the controls on trading, what have been the other nagging points?

There should have been stricter norms in giving licences. People who thought they would be able to do power trading, got licences but they don’t yet have the logistics to do it. Power trading is not an easy task, it requires a lot of technical and sectoral expertise. Traders started competing with each other on unsound grounds. They should have been more professional in their dealings.

If licences have been given to those who did not deserve them, then how viable is power trading?

Unless you have open access which would result in pooling of power, sustaining power trading would be difficult. Open access should be encouraged. There is no problem at the national level but at the state level there are many issues.

What is wrong with the current norms of giving licences?

We only look at the net worth of a company while deciding to give licences. But it is also important to consider its technical soundness. One should look at the technical and commercial support of the licensee organization. Also, it should be seen what percentage of the sales turnover is the firm’s capital, as is the case with banks. For example, if a company with a net worth of `50 crore does trading of `10,000 crore, then its credibility is worth only `50 crore.

One can say that giving licence to such a company is justifiable through payment security, but that is only for unforeseen circumstances. It doesn’t cover the entire turnover. One should have a supporting balance sheet for doing trading. PTC is not merely a broker making two parties meet, we also look at how the trading market is progressing.

What kind of impact would capacity augmentation have on power trading?

Almost all power generators have some surplus and some deficit hours. For example, Delhi might mostly have deficit hours, but in the night it may have surplus power which it may sell to agricultural states. So, there will be seasonal disparities, there will be special disparities and there will be daily disparities and because of all these disparities you can do trading.

If there is more generation, there will be more power available and therefore it would result in more trading. Market should be allowed to move freely, that will encourage trading and bring in more investment. It would give impetus to the whole system. Plus, competition would come in and with that prices can be controlled. Prices may go up initially but later no one would stretch the prices beyond a point. The best mechanism to control prices is the market. So if you have more power, there would be more players and more trading resulting in stabilization of prices.

How do you see cross-border power trade evolving? Are there bottlenecks on that front as well?

Cross-border trading would be beneficial for all the countries in the region. Nepal and Bhutan only have hydro potential, while Bangladesh has some thermal and gas potential as well. We can have inter-connections with Sri Lanka and tap their wind potential and they don’t need to set up thermal power plants and spoil the island. Instead they can buy power from us and during the wind season they can sell power to us. The prospects are good but it is not happening due to lack of connectivity.

At present, we are doing cross-border trading only with Bhutan and Nepal. We are buying surplus power from Bhutan and selling it to those who require it in India. But probably from next year they would require some power from us during the dry season. Nepal is not surplus as of now. It buys power from us occasionally and has signed an agreement for purchase of 150 mw of thermal power on year-round basis. But it is short-term trading, done only in the dry season. When it starts harnessing hydro power, Nepal would become surplus.

With Bangladesh, trading would begin now. The interconnection is being set up. Initially, it would be done through NTPC at an agreeable 250 mw, the rest would be done through trading.

Are there any talks going on with Sri Lanka regarding this?

Talks have taken place many a times. In fact, Sri Lanka is interested in getting power from India, and so is Pakistan. Talks have been going on for decades but now only Bangladesh seems to be fructifying.

If we talk about investments, for example, in the distribution sector private players are not doing well. Does this affect the power-trading market?

It doesn’t have a direct impact, but yes indirectly it does. If power distribution companies are not in good financial health, they would not buy power and there would be load shedding. Consumers would rely on diesel generators and there would be less opportunity to reach out to them.

So, if they are not buying power then they should allow the consumers to buy power from the open access system for which express feeder lines, etc. have to be set up. So, the financial health of distribution companies is also important for the growth of the market.

To ensure the health of distribution companies, the basic thing is that they should get adequate tariff. The regulators should allow them reasonable tariff and not fear that consumers would protest. Consumers are anyway spending more on generators, so if they get regulated supply of power at lower rates why won’t they buy? Distribution companies also have to bring down their AT & C (aggregate technical and commercial  losses) substantially and their cost of buying power. This is not happening yet which is why there is no streamlining in the sector.

PTC has diversified into financing and other areas. Are there any more diversification plans?

PTC was essentially established to bring in private investment in the power sector. And that is precisely what we are doing. In fact we have been able to get a lot of private investment in the sector due to trading. When we were getting into long-term contracts with project developers, they asked us to take some financial stake in the power projects. So, initially we started with small amounts of equity, now we have a finance company which is taking part in equity and debt both.

Similarly, we have also started coal trading. We are buying coal from Indonesia and selling it here. These are the two areas where we have become active apart from power trading. Many people often come to us for advice regarding power trading and their participation. Earlier, we used to give them informal advice, now we do it as formal consultancy.

We have also entered into energy efficiency. Plus, we are also getting into renewable sources of power. So, this is not really diversification, we are just trying to be more proactive in encouraging project developers. Going forward, given the situation of coal in India, for the past 4-5 years, we have been buying coal assets abroad.

What is the logic behind entering into coal trading and buying coal assets abroad? What are the economics involved?

It is. In fact that is the purpose--to make available good quality coal at competitive prices to consumers. However, it is for the companies to decide where they want to source coal from. Whosoever wants to go through us, we help them.

What kind of ripple effect is the coal scam having on the power trading market?

The sector is affected due to the uncertainty. There are many power developers which were given coal and based on that they have been financed, some PPAs have also been signed with us. But the producers and financers have now become worried which is why the process has slowed down.

How can PTC play a role in straightening things?

We cannot play a role in domestic coal as it is given only to power generators and we are not into generation.

What is that biggest challenge you face in the power sector?

The biggest challenge is that Open Access has not been very encouraging though now it is catching up. But despite these problems we have been making profits.

(InfralineEnergy thanks Tantra Narayan Thakur, Chairman and Managing Director, Power Trading Corporation of India for sharing his valuable insights with our readers. The column 'In-Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)