Need to reduce normative PLF, allow pass through of coal cost
A mechanical engineer with masters in business administration, Lajpat
Shrivastav, Chief Executive Officer (CEO)-Thermal of Moser Baer Power &
Infrastructures Limited, a fast-growing integrated power player, talks
about the challenges being faced by private players in the absence of adequate
supply of coal and the need for a coal regulator. Excerpts from interview:
Where do you see the power sector heading and what are the challenges?
The power sector is going through a bad patch right now because of two types
of problems. While there are certain things that are well within the
government’s control, there are few other things that would need some time to
correct even with the best intentions of the government.
Coal price forms a significant component of tariff. While
regulatory framework has been set for power sector, in spite of the
need being felt within the government, no regulator has been set up
for coal sector. This is an urgent requirement. It will help in
monitoring the progress, pricing and distribution policy for coal
blocks allotted to private sector.
Liberalization of the power sector by the government attracted private sector
companies to make large investments during the Eleventh Plan. One must
appreciate the fact that as compared to Tenth Plan, private players added about
45,000 mw power generation capacity in the Eleventh Plan, which is a significant
development. Further over 1,00,000 mw capacity projects are in various stages of
development by private sector and will get commissioned over the next couple of
years, including in Twelfth Plan.
What according to you is under government control and what needs to be
done to infuse enthusiasm in the private sector companies?
Both public sector and private sector companies have plans to add capacity.
Typically in public sector there is not enough emphasis on return of investments
while setting up power projects, whereas in private sector companies this is a
very crucial issue to examine while setting up large, capital-intensive
There are a number of areas where small initiatives in addressing the policy
mismatches can help the sector significantly. Some examples are-Coal India
Limited (CIL) requires signing of power purchase agreements (PPAs) with
distribution companies (discoms) for long-term supply of power to allow signing
of fuel supply agreements (FSA) with developers. Unless there are case-1 bids
for purchase of
power, developers cannot tie up for sale of such power through long-term PPAs.
This issue can easily be addressed by allowing short and medium term PPAs for
the purpose of signing FSA, as an interim measure.
Another example is: Unless Standard Bidding Document (SBD) for case -1
bidding is revised to address the coal issue, no discom is going to invite bids,
lest they get tied up with high cost of power for 25 years. Right now due to
uncertainty in coal supply by CIL, no developer is certain as to how much coal
will come from indigenous sources and how much from imported sources. In such a
scenario it is natural that developers will build cushion while quoting tariffs
over long periods, to ensure they do not suffer losses. Solution lies in either
reducing the normative plant load factor (PLF) for capacity charge, or make coal
cost completely pass through in the tariff.
Another example: Government of India started ultra mega projects with lot of
fanfare. But now when the first set of such projects are stuck, the government
is not coming forward with any kind of help. If these projects become unviable,
it will send a very wrong message to the sector.
There are many such examples and they have been discussed with Power Minister
Jyotiraditya Scindia in the meeting organized by the Association of Power
Producers (APP). One thing is clear, unless the government sends out clear
message to the sector that it will not allow the assets to become NPAs right
from the beginning, the investor confidence will not be restored and further
investment will suffer.
It means there are issues other than availability (or the lack of it) of
coal which are creating problem? Is lack of clarity from the government also
adding to the problem?
Coal availability of course is a problem. It is a recognized fact that there
is coal shortage in the country. However it is surprising that the GoI or CIL is
not coming forward in a clear manner to show how this issue will be dealt with
in the interim till coal production is augmented. While it is heartening to see
that GoI has constituted committees to study these issues and make
recommendations to ease the situation, the recommendations are not implemented
with same speed and focus.
Ministry of coal and power need to jointly come out with interim policy /
strategy to address the shortage of coal supply. Coal price forms a significant
component of tariff. While regulatory framework has been set for power sector,
in spite of the need being felt strongly within the government, no regulator has
been set up for coal sector. This is an urgent requirement for the country. This
step will also help
in monitoring the progress, pricing, distribution policy etc for the coal blocks
allotted to private sector.
Coming to Moser Baer’s thermal project at Anuppur, where are you stuck? By
when do you feel the project in Madhya Pradesh would become operational?
We had a plan to become a 5000 mw company within first five to six years. We
are moving forward according to our plan and have developed two projects with
overall 4000 mw capacity. The first is the Anuppur Phase-I where we have
completed about 60 per cent of the work and the unit is likely to be
commissioned by December this year or early January next year. The problem we
are facing is of case-1 bids which are not coming as state electricity boards do
not want to take the risk of committing to high price power and without a bid
Coal India would not commit coal supplies. We are concerned about the coal
supply for the project when it gets commissioned.
The uncertainty over coal supplies is forcing us to go slow on
projects that we had
planned. We have plans to develop a 1320 mw unit in Chhattisgarh and
another 1320 mw at Anuppur in phase-2. These two projects are ready
for implementation with all clearances tied up, but we will start
the execution of these projects only when we see comfort in the coal
We do have a joint venture with Chhattisgarh Mineral Development Corporation
where we are developing a small commercial coal block. Since the block does not
have huge resources, we may be able to fill some part of shortfall from this
block, but it is too small a block to be of much help.
This uncertainty over coal supplies is forcing us to go slow on other
projects that we had earlier planned. We have plans to develop 1320 mw unit in
Chhattisgarh and another 1320 mw at Anuppur in phase-2. These two projects are
ready for implementation with land acquired, all clearances tied up, but we will
start the execution of these projects only when we see comfort in the coal
We understand that there are issues at several fronts ranging from coal
supplies to signing of fuel supply agreements. Are there challenges at lending
front as well?
While lenders such as State Bank and Axis Bank are lending to power companies
even when Fuel Supply Agreements (FSAs) are not signed, but linkage is granted
by Coal India / ministry of coal, public sector companies such as Power Finance
Corp and Rural Electrification Corp insist on FSA before lending. These
institutions come under the ministry of power and know the constraints being
faced by developers with regard to FSA and therefore, they need to evaluate
whether coal linkage is available or not, like any other bank or FII. But
putting FSA signing as a pre-condition for funding is something developers are
not able to solve and this creates a stalemate. Being the finance companies,
which are specific to power sector, they should realistically align themselves
with the sector and lend money considering the practical issues in the sector.
With all these issues plaguing the sector, would it be right to assume
that the government’s approach towards the sector is casual?
No. I would not say that. I believe the government’s intentions are right
otherwise it would not have brought a young and dynamic leader like Jyoritaditya
Scindia into the ministry. We sincerely believe that the problems would be
addressed sooner than later as the country cannot afford to miss the bus this
time. I am sure that the government is fully aware that slowdown in power sector
will have adverse impact on the overall economy and GDP growth.
Do you see it encouraging particularly for the private sector companies
where Coal India is not participating in 17 blocks that would be auctioned
now? Does that mean serious private companies would now have little more surety
on coal supplies?
The policy for auction of such coal blocks may have to be such that private
sector can participate. Right now as far as I know there is some confusion in
this area. However I believe that even earlier coal blocks were allotted to
private sector for end use of power projects, but because of the various
difficulties faced by them in getting environment clearance, land acquisition
etc, these blocks have not been developed so far. In parallel with concentrating
on the allotment of fresh coal blocks, the government should also think of
setting up a common / monitoring ministry for helping such developers in
starting the production from such coal blocks.
What are your views on sharing of surplus coal within a company? 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 ?
In view of such huge shortage of coal in the sector, it will be a welcome
step to allow sharing of surplus coal within a company to develop other
projects. This will reduce pressure on coal ministry as well as CIL. Not only
this, it will be further helpful if MoC / CIL introduces incentives for
increased production from the allotted coal mines which will ultimately
help the sector. It is now time for the government to seriously think of
removing the monopoly of CIL in coal production, in line with most other
developed countries. This can only happen if a regulator is set up and blocks
are allotted to private players and a central ministry is set up to assist them
in obtaining all the clearances in a timely manner.