KVB Reddy, Director, Essar Power Ltd.

Essar is on track to commission 6,700 MW of power by 2014 as against the target of 9,670 MW. Due to the issues raised above, we have deferred implementation of three projects aggregating 2,970 MW subject to achievement of critical milestones. These projects include a 1,320 MW imported coal project at Salaya (Jamnagar) and a 600 MW petcoke cum imported coal project at Salaya (Jamnagar).

What is the situation on the supply side of raw material and power equipment? How do you see BHEL’s stand, where it wants the government to impose 21% import duty on power equipment, even when it is not capable of meeting the demand on its own.

The delays in environmental approvals are affecting mining in domestic captive coal blocks. While the ‘go, no-go’ classification has been done away with, industry is still awaiting actual clearances like forest approval, environment approval etc to come through. As such, the industry continues to reel under a severe shortage of coal, the situation has been further compounded by change in mineral export laws in countries such as, Indonesia and Australia, which has steeply increased the cost of imported coal.

We feel that development of the power sector is critical for India, and any duty which significantly increase the cost of equipment, would be detrimental to projects and increase price of electricity to end-consumers. Also, with domestic manufacturers of equipment unable to meet the demand of projects in time, putting any curbs in import of equipment is not justified.

The requirement of manpower for the power sector is largely local, while there is a challenge in hiring skilled manpower even in India, there is no impact of global recession. 

What are your views on surplus coal supplies? Even when the Planning Commission had proposed to allow it considering the wider benefits, Coal Ministry seems to oppose the idea, as it would throw open a bigger challenge for Coal India and the Ministry.

The reserves of Essar’s captive mines are just adequate for our own power plants and there will be no surplus coal available for us.

India’s power deficit is significant and will continue unless the installed capacity and output grows adequately to bridge the gap. This will require both domestic and international coal based projects – the latter, though more expensive, is required particularly, as current regulatory environment is hampering full utilisation of domestic coal resources.

Currently, the concern is both, on the supply and the demand side. On the supply side, poor availability of fuel (both coal and gas), transmission capacity bottlenecks, slow pace of obtaining statutory approvals for land acquisition, are key factors affecting capacity creation.

Several projects at the development stage are being deferred/ kept on hold due to the above mentioned reasons.

Significant rise in the interest rates in the last three years has also affected fund raising. Availability of plentiful debt capital at reasonable cost is critical for any business, particularly infrastructure, as debt typically finances 75% of the project cost. The current state of capital markets is also not conducive to raising equity, funding new projects has become extremely challenging. 

On the demand side, absence of tariff reforms have led to high losses and financial stress for distribution companies, which are the main bulk procurers of power. While default situations are currently moderate, poor cash flows are affecting ability of distribution companies to off-take power, which is creating additional uncertainty for capacity creation.

While the government’s target and the actual capacity addition achieved in the past year is laudable, the challenges faced by the industry will make the target achievement much more difficult. However, we remain optimistic that the government is cognizant of these factors and is taking active steps to address them.