Power Grid FPO decision with co; more UMPPs soon: Scindia

The management of state-run Power Grid will decide on the timing for its follow-on public offer (FPO), assures Union Minister of State for Power Jyotiraditya Scindia. "I am not one of those ministers that dabble in the functioning of every particular company. If you have a CEO and a CMD in place he or she and the Department of Finance must take that decision," he told CNBC-TV18 in an exclusive interview. 

CNBC-TV18 on Tuesday reported that Power Grid will be selling 20 percent of its stake through the FPO soon. Of this 20 percent, 15 percent is the company's shareholding and the rest five percent is the government’s stake in the company. Market watchers, however, remain skeptical with regards to the timing of the issue.
However, Scindia argues that no any company works on a long-term trajectory based on what the share price is doing and neither does the economy on the basis of what the Sensex is doing. He says the longer term goal remains creation of value, whether it is NTPC or Power Grid Corporation of India (PGCIL).
"I am very confident that with the culmination of the integration of the southern grid, hopefully by the end of January or early February, as well as all the other projects that PGCIL is today looking at, you are going to look at creation of value in India for this company going forward," he says. Below is an edited transcript of the exclusive interview on CNBC-TV18 Q: The Power Grid follow-on public offer (FPO) has not gone down well with the market. The government intends to divest 5 percent and the company is looking at offloading 15 percent. Is this really the right time to consider an FPO for Power Grid?
A: This is a decision that the company must take. I am not one of those ministers that dabbles in the functioning of every particular company. If you have a CEO and a CMD in place, he or she, and the Department of Finance must take that decision. I do have a background in investment banking, but I do believe in delegation of authority. I think it is best looked after by the management in that particular company.
Many times on your show the government has been accused of always interfering in the functioning of PSUs. In the last 8 months, I have tried to desist from doing that. But you are making me do exactly what you are telling me not to do before I became Power Minister. Q: As the nodal ministry do you believe that the time is right given the appetite in the market because look at what happened with National Thermal Power Corporation (NTPC)?
A: The NTPC issue was a successful issue. We have raised almost close to USD 2.2 billion. Q: But look at where the share price of NTPC is trading today?
A: That maybe. But please understand that a particular point in a market's estimation of value is an episodic point. It is a snapshot. It is not necessarily the long-term outlook for any company. The same way that when we look at when the market was at 23,000 and everyone said: “everything is overvalued”; I do not think it is fair to look at it that way.
I do not think any company works on a long-term trajectory based on what the share price is doing and neither does the economy on the basis of what the Sensex is doing. Longer-term we have to concentrate on creation of value whether it is NTPC or Power Grid Corporation of India (PGCIL). I am very confident that with the culmination of the integration of the southern grid hopefully by the end of January or early February, as well as all the other projects that PGCIL is today looking at you are going to look at creation of value in India for this company going forward. Q: The Finance Minister at his last briefing spoke about pending Fuel Supply Agreements (FSA) being signed by the 31st of August. Can you give us a sense of whether all the pending FSAs have now been signed and that has been done and delivered?
A: I love the way you phrase your questions as if it is a snap of the fingers and everything gets done. That is not the way things are because these are very complex things. Q: I am only going by the deadline that the Finance Minister is publicly stating.
A: We had a total of 173 FSAs pending which aggregated close to about 60 gigs which then became 78 gigs based on our approval. Of that 78 gigs and those 173 FSAs we have signed as of now close to about 125-130 FSAs. It is very propitious that you called me in for this interview at this point of time, because just 10 minutes ago I finished with a meeting with both the Coal Secretary and the Power Secretary.
This is something that I am monitoring at my level on a biweekly basis. We had set certain deadlines for yesterday for FSAs to be signed. 80 percent of those FSAs have been signed. Out of 49 we have signed close to about 35 FSAs which were slated for a deadline of yesterday. There are 14 FSAs pending. By the 6th of September we have close to about 15-20 FSAs being signed. I am fairly confident that out of 173 we will come close to 150-155 mark by the 13th of September.
The balance 15 of 18 FSAs, there are two issues. One certain private companies and PSUs have not completed their milestones with regard to forest clearance (FC) of stage-II and other land issues. That onus is on those companies and not the Coal Ministry or the Power Ministry. That needs to be resolved ASAP because documents are pending from their end. Number two, one or two companies have gone through a name change and a sale prior to signing the FSA which is a violation of the agreement.
So those one or two will not get signed and then there are a bunch of 10 which are the whole issue of tapering linkage, where the normative date has been moved which I along with the Coal Ministry will be taking to Cabinet Committee on Economic Affairs (CCEA) to get clearance on that so we can sign that. So net-net in short, we are well on our way and we will be signing close to about 155-160 FSAs of the 173 by the 13th of September, of which we have already signed close to about 125-130 as I speak to you today. Q: We have seen a decision being taken by the government as far as gas pricing goes. I know that your ministry was opposed to any hike in gas prices. We then heard from the government talking about a difference as far as the input cost and output cost was concerned. Where do things currently stand as far as gas pricing specifically for the power sector is concerned?
A: The gas problem has to have multiple solutions and I have in mind a four pronged solution. first of all is the additional allocation of gas which you very well know and through you I would like to inform our viewers that post April 2014 all additional gas for the next three years, which means 13-14 1.35 mmscmd and then close to another 11 mmscmd over the next three years uptil 2017 will be given to the power sector. So we are talking about an additional close to about 12.5-13 mmscmd of gas. All the extra gas is only going to come to power sector. There is no equal priority, none of that stuff, all additional gas to come to power sector.
_PAGEBREAK_ Q: But questions are being raised about the additional gas coming into play itself.
A: If you just allow me two minutes to finish before you interject because the information I give you is based on the estimates that have been provided by the Ministry of Petroleum and Natural Gas which is based on finds that are already present, i.e. Oil and Natural Gas Corporation (ONGC), i.e. Deen Dayal West (DDW) which are already present. So in the next three years we are sequentially going to look at 1.2 mmscmd, then another 2.5 mmscmd next year, then another 3 mmscmd the year after that, another 4.5 mmscmd the year after that.
All that 12.5-13 mmscmd is going to come to the power sector; that is point number one. That has been already discussed, debated, decided and the EGoM minutes are going to be out in the next day or two, you are very well aware of that.
Secondly, we are looking at a concept of gas pooling, the basis of what the power sector has which is 27 mmscmd, plus this additional 12-13 mmscmd we will be getting over the next 2-3 years, whether like in the case of when we are looking at coal pooling which then became a pass-through mechanism whether we can looking at a pooling mechanism for gas, so that is the second solution.
The third solution that we are looking at is really putting in place a zero duty basis for imports of gas. I have already got the notification for that from the Finance Ministry 2.5 weeks ago and it is in place. So Gas Authority of India (GAIL) or any other provider of gas now can import gas now at zero duty for the power sector.
The fourth is really a concept of peaking power, so to be able to replace close to about 40-50 gigs of diesel generating capacity with gas. I am looking at putting an additional chapter in the standard bidding documents (SBD) of Case-I on peaking power so as to have a peaking power policy. So it is a holistic solution, a four-pronged solution to look at the problem of gas. Q: Has a decision been taken as far as the price was concerned? The Finance Minister articulated after there was controversy on the price that the input cost would be different.
A: On the pricing, as you remember, the Cabinet has taken a decision at USD 6.835 mmbtu as of today. Whatever the corresponding price will be in April 2014, which I presume is going to be roughly around USD 8.2 or so, for the gas that will be produced or will be produced in the future. However, there is a caveat there that was discussed in cabinet that for the fertiliser sector and the power sector which are regulated sectors on the downstream area, i.e. where the consumers are concerned we will had to have a special dispensation, because any price beyond USD 5 mmbtu becomes unviable for any company to take on gas as a raw material to produce power.
As we speak, I am working on the paper to look at the fungibility and the possibility of this special dispensation. As we speak in the next 10 days or so I will have that ready and I will try and move that to cabinet so that we can get clarity with regard to the 27 mmscmd of gas that is being provided to the power sector at this point of time. Q: As you mentioned that anything beyond USD 5/mmbtu will make power projects unviable. Is your ministry going to move cabinet and say cap the price of gas for power and fertiliser at USD 5?
A: If I am not mistaken that is exactly what I told you. Q: So you are going to be telling cabinet to cap the prices of gas for power and fertiliser at USD 5/mmbtu?
A: All that I am saying is that I am going to take a paper to cabinet. I am not going to stick my neck out and say USD 5, because it could be USD 4.9-4.8 or it could be USD 5.5. So do not take a figure from me right now, but I am working on it as we speak and whatever is the price that the power sector can afford I would be taking that proposal to cabinet. Q: The hope is on part of your ministry to award two Ultra Mega Power Projects (UMPP) by the end of the year. Do you stand by that timeline? Do you believe that we will be able to get that done now that the amendments to the SBD have been made?
A: We are still waiting on one or two clauses that need to be cleared by the Ministry of Law and Justice. We have already cleared the EGoM. We have cleared the inter-ministerial group, so we are all systems go. I certainly hope that the Request For Proposal (RFP) for these two projects should be out in the next month or so. Q: You will ensure that only domestic manufacturers will be given preference or will be allowed to cater to these UMPPs because that was not the case earlier and companies like BHEL did not even get a single one when the last four were awarded?
A: I think that is a question that you need to address to my colleague in the Heavy Industries Ministry. I am going to be involved with issuing the RFP. I certainly hope that Indian manufacturers or those that have a Phased Manufacturing Program (PMP) in place in India, such as many foreign manufacturers such as Mitsubishi, Hitachi that have setup domestic faculties also will be able to compete in that market. We have a level playing field and we look forward to competition and at the lowest price.