Moneycontrol
Dec 06, 2017 08:20 PM IST | Source: CNBC-TV18

More power purchase agreements need to be signed: RK Singh

Seven plants will be brought on the stream as soon as Shakti takes effect. Shakti auction has happened, coal mines have been allotted, now some signature was pending with the Coal India Ltd. If they have signed then that will take seven more of (the projects), RK Singh, MoS, Power & Renewable Energy said.

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In an interview with CNBC-TV18, RK Singh, MoS, Power & Renewable Energy discussed about the stressed assets in the industry.

Seven plants will be brought on the stream as soon as Shakti takes effect. Shakti auction has happened, coal mines have been allotted, now some signature was pending with the Coal India Ltd. If they have signed then that will take seven more of (the projects), he said.

Below is the verbatim transcript of the interview.

Q: What do you think about stressed assets in the power industry?

A: They held a series of meetings with the promoters as well as the bankers, other investors and worked out a roadmap for salvaging whatever could be done. Much of the stress happened for the two reasons, one reason was that there was a huge scam in coal during the previous government. The coal blocks were first settled and then those coal blocks were cancelled and so suddenly all these power plants, which were under construction, which had been completed or are near completed, they were all stranded.

With this disruption, the interest kept going up, the promoters ran out of money because they didn’t have any balances left to top up the equity because as the loan component goes up because of rising interest rates during construction, we have to add the liquidity to maintain that balance, they could not do that is when they all become non-performing assets (NPAs).

What has happened is that two of these plants have been brought on stream. Seven plants will be brought on the stream as soon as Shakti takes effect. Shakti auction has happened, coal mines have been allotted, now some signature was pending with the Coal India Ltd. The Coal India Ltd board was supposed to meet yesterday, I think it met yesterday, I will have to check whether they signed it. If they have signed then that will take seven more of (the projects) – the seven are those where the work had not got off the ground so nothing has happened as yet.

There are some assets which were complete or near complete, which do not have power purchase agreements (PPAs) then we have worked out a scheme whereby the Power Trading corporation will aggregate about 3000-4000 megawatt (MW) and sell it in medium-term PPAs to different states. This is market creation for those assets. So we are working on it but I told you as to why it happened and we are working to salvage as early as possible.

Q: Which are the states that will buy from Power Trading Company (PTC) and how much as a capacity?

A: There is one thing more which I have in mind and that is that I have got a study conducted, that file has come to me, let me examine it first. Basically my idea is that if any entity has a license to distribute power to a particular area, they should show to the regulator that they have tied up sources of supply to meet the requirements of power of that area and only then should the license be granted or renew. This means – what I am saying in other words is that the PPAs must be there and the PPAs should be the extent of 85 percent or 90 percent or 95 percent or 100 percent on the requirement that is what we have to decide. This is necessary because we are finding that once you have an open market and once you have a situation where some power is not scheduled for that a generator, it makes sense to sell power at variable cost on the exchange.

If he is selling at variable cost of the exchange, it is tempting for the distribution companies (DISCOMs) to buy power from the exchange while backing down on the scheduled generation from its long-term sources of supply. So this cannot happen – it cannot be allowed to happen beyond a particular point otherwise what will happen is that the market will get distorted.

Q: There are other assets which were up and running but they have had some issue with regards to expensive import of coal, two of the specific projects of Tata Power as well as Adani Power along with Essar Power’s project in Gujarat – what happens to them, they are the running plants?

A: There is no ban on import of coal. They can import coal and sort of run their plants, absolutely there is no ban.

The only thing is that now since you have one market and you have PAN India market for power, you have to be competitive in order to get scheduled otherwise people will not buy power from you.

Q: NTPC has given a tender for 500 MW looking for some of the projects specifically, some of the brownfield assets that they are looking to take over, will that be also one of the routes since PPA is not in the market in some of the assets?

A: As far as NTPC taking over some of these assets are concerned, that will be a commercial decision. Basically the entities which are going the NCLT route, there - as far as I know - the first procedure is for this professional to get the bankers and the promoters together to try and sort it out and see whether the present dispensation can run it or whether somebody can step in as promoter after consensus. If that does not happen then the professional will auction that plant and then NTPC will decide whether to participate depending on the conditions of plant and the valuations of plant and if NTPC decides to participate, what should be the bid which it will give. That will be a commercial decision based on the valuation of the assets on the ground and the bid which has come.

Q: Cost recovery is a problem even for the hydro sector and that is why it has not picked up so could you explain what would be the contours and how soon can we expect the policy to come in and will there be incentive in terms of financial help for these projects?

A: The policy is in the works, it is almost complete, a few days from now it should be getting it but two-three things which I spoke out about in that round table with ASSOCHAM on hydro, two-three methods which appeared to us to be viable were - one is that hydel assets does not only generate power, it also irrigates land, it also source water so as to droughtproof a particular area and provide irrigation – drought-proofing, flood-proofing and providing irrigation and generation of power. So the entire cost should not be loaded on to power. In fact, the cost assets which go towards meeting the requirements of irrigation – that should be met from the irrigation budget.

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