Power infrastructure in the country is under unrelenting pressure to perform and meet the demands of a growing economy. Speaking with InfralinePlus, KVB Reddy, Director, Essar Power Ltd. spoke at length about the challenges the industry is facing in an effort to metamorphose itself from a caterpillar into a butterfly.
How do you foresee Essar Power’s future growth in the light of issues such as FSA, environmental clearances and Coal Ministry’s proactiveness on block development front?
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.
Has the situation on the human resource front improved for domestic power producers because of downturn in the developed world?
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.
Is importing coal a feasible solution for meeting fuel supplies for power generation?
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.
Is the target to set up about 78,000 MW capacity in the current Five Year Plan an achievable target?
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
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
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
(InfralineEnergy thanks KVB Reddy, Director, Essar Power Ltd. 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.)