Aug 08, 2013, 01.59 AM | Source: CNBC-TV18

Order shortage key issue for power cos, not execution: Pros

The country has installed capacity of more than 20,000-25,000 MW and only 5,600 MW worth of orders got finalized, hence going forward capacity utilization for all power sector players will be less than 25-30 percent. Shortage of orders is more of a problem for the power sector than execution.

Shortage of orders is more of a problem for India's power sector than execution, says MS Unnikrishnan, MD, Thermax .

Most of the larger power projects, especially, in thermal area are already financially closed. In India, execution maybe a challenge, but it is manageable with maybe a couple of days delay or at best maybe a six months delay, he told CNBC-TV18 in an interview.

India has installed capacity in excess of 20,000-25,000 MW and considering only 5,600 MW worth of orders got finalized, capacity utilisation going forward for all power sector players will be less than 25-30 percent, he adds.

Also Read: Total exposure to discoms at Rs 4500cr: Andhra Bank

Scarcity of coal, rupee depreciation, economic viability and sectoral lending limits that are already exceeded in the banking system for the power sector and major non-performing assets (NPA) are getting in, they are some of the reasons behind the mess in the power sector, says Unnikrishnan.

Another issue plaguing the power sector is the distressed state of affairs of discoms, feels RS Ramasubramaniam, co-chairman, Feedback Infra. He feels that some measures can come in despite the upcoming elections.

Below is the verbatim transcript of MS Unnikrishnan and RS Ramasubramaniam’s interview on CNBC-TV18

Q: Your business is not exactly identical to Bharat Heavy Electricals (BHEL), but you do operate in the boiler, turbine, generator (BTG) space. Can you just take us through what exactly is going wrong in that space? Is it lack of orders? Is it competition? Why are companies like you doing badly?

Unnikrishnan: Thankfully Thermax is not only into boilers. Let us specifically talk about the power sector where there is a high dependency on companies such as BHEL. The power sector had finalised approximately 45,000 MW worth of orders in 2009-10. That year a predominant part of the orders went to China on prices.

The next year it had climbed down to 9,000 MW in the full year and the last year which concluded in the month of March, India finalised only 5,600 MW worth of orders. BHEL as a company has got an installed capacity of around 20,000 MW, of course that includes hydel plus everything put together, but in thermal area I believe they maybe having anywhere from 10,000-15,000 MW of capacity.

Larsen and Toubro (L&T)-Mitsubishi Heavy Industries (MHI) joint venture has got a capacity of 5,000 MW and Thermax Babcock & Wilcox has got a 3,000 MW capacity. So the installed capacity in the country is in excess of 20,000-25,000 MW and when you say that only 5,600 MW worth of orders got finalized, capacity utilisation going forward for everybody can be less than 25-30 percent. So this is a major concern in the power industry.

On one side we have got a power shortage. Peak shortage in the country is almost touching 10 percent and normal shortage is 7-8 percent. Even with an economic growth rate of maybe 6 percent you will have to increase power supply in the country by not less than 6-7 percent. So demand is innately increasing. Unfortunately we are caught in a quagmire as a country.

We had the Indian Electricity Act passed in 2003 and it was supposed to be a public-private partnership (PPP) whereas the Indian government and the people of this country took it as if it is privatisation of electricity. It is not so. Even today, the private companies are unable to participate along will public. So responsibility will rest on the government in terms of passing the Land Acquisition Act, which is lying in the parliament for the past three sessions not seeing the light of the day.

Even in the current status if it is passed it maybe better, but it is not the best of the thing. Second, where is coal available? Predominant part of Indian power is going to come from coal supply and Coal India is unable to increase its coal production and those who are dependent upon international coal supply are paying through their nose with the changes in Indonesian law where they are asking Indians even those who mine over there to pay as per the global rate and rupee having depreciated by almost 20 percent in the last year and half, it will increase fuel prices.

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