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Ashok Khurana, Director- General, Association of Power Producers

01 Feb 2014

The year gone by saw the government making some efforts to improve the availability of power in the country. But the steps have largely failed to have the desired impact. Director- General of Association of Power Producers, Ashok Khurana speaks to Deepak Sahu of InfralinePlus on the reasons behind stagnation on generation front. Excerpts.

Do you agree that there is a policy logjam and that the government’s inability to stick to its commitments has led to investments drying up?

Earlier we had a policy paralysis, but in the past five to six months things have started moving. The Cabinet Committee on Economic Affairs (CCEA) has approved the revision of tariffs and passthrough in imported coal price to meet the deficit of Coal India. This is a positive step. But power sector does not need only policy support, it also needs regulatory support. Several petitions have been filed with the Central Electricity Regulatory Commission (CERC) regarding both these decisions of CCEA. It will take about 10-12 months to resolve. The issue is of inconsistency in policies. For example, earlier we had the policy of inviting competitive bids. Then going by the shortage of coal, the government retrospectively imposed the condition that you cannot supply power unless you have a long-term power purchase agreement (PPA). Now the question is that you can’t get coal. Bids worth 30,000 mw have taken place in the past three years, but since there is no coal, only 3,000 mw has been finalized because you have put a condition over which the developer has no control. So we have been writing to the government to remove this policy constraint. You want the investor to have a long-term PPA which is beyond its control. It is the duty of the state government that as per the demand projections they must come out with the bids and finalise them in a given time frame. Nothing has been done. CCEA may have cleared major policy issues, but that policy has not borne fruit at the ground level. Again, the regulation allows short-term, medium-term and long-term PPAs. But the ministry of coal says they will not give coal for medium-term PPA. We have shortage of coal because of irrational conditions which are impacting the sector.

Do you see things improving down the line as the proposed mega power policy will also ask power producers to have long term PPAs?

Except for one decision of CCEA -- of implementing pass through -- nothing much has been done. The delay in decision-making is causing great stress in the sector. We have been asking for revision in accounting standards. The reason is very simple. Power producers can put up a plant and arrive at a commercial operation date (COD) but the commencement of operations is not in their hands as coal and gas is controlled by government (supply and pricing). If they don’t have gas /coal, they can’t start the plant despite achieving COD. How can they pay interest for a project which doesn’t have gas and actually not seen COD? So, we are requesting for shift in accounting standard to meet this condition so that the COD can be shifted till the gas is available and till then the interest is capitalized. Then there are many projects which are stuck due to mining delays. When the end use plant is ready, at least the government can give them a new mine or give them a long-term linkage. Also, giving them tapering linkage and charging 40 per cent premium is a major issue. There is probably no check on the monopoly of state-run Coal India. Unless fuel availability is improved, I see no progress on power front.

The government has done a lot in announcing the first-ever coal block auctions in the country. Do you see cash crunch faced by power developers posing a threat? Has any auction come up as yet?

We are not yet clear on fixation of reserve price for the blocks. The government has come up with a new model for ultra mega power projects (UMPP) where they say they will declare the price of the mine being given to the developer. But how will they do that? What kind of formula will they adopt in fixing the price before hand? And the price they will be fixing will be an arbitrary price. So, you have arbitrary price fixation with pre-determined escalation rates. All those projects were bid out earlier because of fuel issues and the same flaws would persist in the new agreement. Unfortunately, the government did not learn any lessons from the last bidding.

What is the perception about the political situation and how do you see investor sentiment panning out in near future?

Investor sentiment is influenced by stability, predictability and policy framework. It is not related to a particular party. It’s all about providing enabling environment. The present conditions are due to impositions over the past two years to cut down the use of coal. On one side fuel is controlled by the government, they put conditions so that coal demand dampens. On the other side we have the distribution companies which are 95 per cent controlled by the state governments. They depend more on load shedding. They are not supplying power to control their finances. Unless state control is removed, there can be no private investment.

In a bid to increase coal production, the government is working on various proposals including coal banking and dual pricing of coal. Will they work?

Coal banking will only alleviate problems to the extent of 8-10 million tonne (mt) of coal after two to three years, thus reducing imports, which in turn will help contain the current account deficit. If coal banking is taken up on a long-term permanent basis then we may actually find 25 mt coming in the market by the end of 12th Plan. This is as per the current position of mines. But I feel the ministry of coal is very cold to this proposal of coal banking. Planning Commission is the only body which acted in a very positive manner on all issues relating to the sector. Dual pricing of coal is a good concept which will not affect anyone.