CIL can up production by 10-15% post FSA notice: Tata Power

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CIL can up production by 10-15% post FSA notice: Tata Power

With majority of the power generation in India coming from coal, Anil Sardana, the managing director of Tata Power tells CNBC-TV18 that the PMO's directives are a step in the right direction.

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The power sector has been in focus over the last couple of days over talks of whether the Prime Ministers Office's (PMO's) actions will help alleviate some of the coal supply pressures that the sector is facing.

At yesterday's meeting of the Committee of Secretaries (CoS), it was decided that by by March-end, Coal India  would sign the Fuel-Supply Agreement (FSA) to power projects commissioned up to December 2011.

With majority of the power generation in India coming from coal, Anil Sardana, the managing director of Tata Power tells CNBC-TV18 that the PMO's directives are a step in the right direction.

The power sector is facing a serious crisis due to shortfalls in the supply of fuel (coal and natural gas). Construction of a number of power plants has been completed, but they have not been commissioned due to non-availability of fuel. The country is facing an acute coal shortage estimated at 137 million tonne this fiscal.

Coal India, for one, benefits greatly as it looks to enhance its production. "CIL can enhance production by 10-15%," says Sardana.

Below is an edited transcript. Watch the accompanying videos for more.

Q: It is a great positive for many of the IPPs who will get some coal supply. But by what has happened from the PMO, do you think that is enough to operationalise the entire matter because there are a few constraints still like port infrastructure, logistics due to which it will be difficult to get in imported coal or also coal that CIL produces now will not be enough to meet the demand. Do you think the older (FSAs) will actually have a lower proportion - not the 90% trigger value but the 80% trigger value? Will that be a negative for them?

A: It's a good beginning that today there was absolutely no clarity in terms of how the whole thing will become bankable. There are projects which are off the ground or many of them which are working today and many of them will be coming through till March 2015, before the cut off date.

Coal India would look towards enhancing their production. There is tremendous opportunity for productivity. If you look at statistics, India has 20 times more coal reserves than Indonesia. Today, we are both producing similar quantity of coal. There is no doubt about the fact that there is more opportunity that one needs to pursue. That's one thing that's going to happen by virtue of this signal.

Secondly, in the interim they have been told to import coal. Three things will happen when centralized coal is brought - it will spread in terms of cost of the coal that's there with CIL, then the IPPs will be able to generate to the requirement and thirdly, the banks will feel secured because the assets will at least be utilised. So it's a very positive signal that has been sent.

Q: Are there any plants where you had signed a Letter of Assurance (LOA) with Coal India? Immediately, does life get easier at any of your power plants?

A: Yes, we had the additional unit at Maithon which is in the eastern region and also at Jojobera where it was at the LOA stage and we will now get on to the FSA. In addition, there were some other projects that we wanted to sign off but kept them in the lurch only for the reason that there was no line of sight on coal and now this gives a very positive signal for us to go ahead and work on them.

Q: There was an understanding that only those where LOA's had already been signed would be entitled to the 80% fuel supply guarantee for 20 years. Will they be included?

A: That's right. LOA's by and large have been signed for all those capacities that we talk today. It is only that they were just a piece of paper where it won't be bankable because there was no FSA that was in sight. Now with this change, the FSA should happen.

The more important part is that there is a productivity part that has come in for the first time that you supply 80% otherwise you pay penalty and if you give more than 90% you get incentives. Naturally, any team would pursue incentives. I am sure by virtue of this indication, it brings about the fact that Coal India must show that they will be able to supply more than 90% of the coal and earn incentives.

Q: While it's an unequivocal positive for the Maithon project which is a 1,050 MW, the big question is whether the existing PPA at least for the UMPP will be resigned and you will be allowed fuel cost pass through. Do you think that is feasible?

A: We have seen one action from the committee headed by principal secretary to Prime Minister. One is only hopeful and one can assume that actions will follow. So we are waiting for the next action and hopefully, this issue should also get addressed in due course of time.

Q: The only problem here would be perhaps that the State Electricity Boards (SEB) condition is not great. If PPAs are renegotiated, the burden on them will rise. Do you think it is practically feasible for the government to make a move on that given the condition of the SEBs at this point?

A: This is a clear misnomer. If these projects which are stranded today don't come up, forget about Mundra because it is already generating but the 40,000 MW which is now in a lurch because if the imported coal issues are not settled, then the purchase of power that they will do through exchanges and they will have to bridge gap will be many times more than the power that they will pay if they were to make this as pass through.

For example, we did a very back of the envelop calculation that if 10,000 MW which today is available on imported coal but is not running fully, if that was to be brought on par, in the whole country the tariffs impact will be just less than 5 paisa. So, what are we talking about?

We are talking about the economic cost or we are talking about the 5 paisa as a fear of the SEB's health? Having worked in the distribution sector, I would say, if somebody can reduce losses by 1%, you will not only just compensate for this 5 paisa, you compensate for much more than that.

Q: Is your Mundra power plant in any way impacted by the PMO announcements?

A: No, not yet. This announcement is basically for domestic coal projects and Mundra is completely on imported coal.