Power sector in serious logjam between ministries, cos: APP

Ashok Kumar Khurana, director general, Association of Power Producers told CNBC-TV18 that the stagnation seen in private power projects is due to lack of clarity of policy and regulatory framework.

"There is complete logjam between different parts of government, ministry of coal, ministry of power, CEA, state government and the banking fraternity." These companies are not being able to get fresh funds because bankers aren’t issuing fresh capital unless fuel supply agreements (FSAs) are provided to them. Coal India on the other hand asks for a power purchase agreement (PPA) to give FSA, this is impacting the power projects to a very large extent, he explained. The sector is facing too many issues at this point in time and those issues need a timely solution or else the 12th plan targets would suffer very adversely, he added. Below is the edited transcript of Khurana’s interview with CNBC-TV18. Also watch the accompanying videos. Q: The fact that the coal ministry is unwilling to supply or subsidized coal as they call it for those who don’t have PPAs (power project agreement) or those power producers who are selling power on a merchant basis. Is this being taken up by the Pulok Chatterjee committee? What is the APPs stand on this is and your future strategy? A: When they issued the letter of assurance it did not have a condition of PPA and a man who takes a risk of merchant power, he is taking the off take risk. He is not assured of supply or off take for 12 months. Many a times he may not find any take up for his power. So if he is taking the risk he is also getting the reward during scarcity time. But leave aside the PPA, even those who have PPAs they are not getting coal. When we met the Prime Minister for the first time and then it was 80% trigger point then Coal India has gone back and said they cannot supply a trigger point at 80%, they want to reduce to 65%. Now 65% trigger point actually takes to do 55% of PLF, which means all plants would be producing almost only supplying power of half their capacity. So, half capital gets stranded, they cannot meet debt service obligation and that is not acceptable to MoP (Ministry of Power). Today the developer is not even sure those on a linkage coal basis, how much coal will he get from Coal India. How will he meet his normative ability level? How will he service his debt? All these questions are still hanging. Q: Compared to the position before the Pulok Chatterjee committee was set up has anything materially been resolved? A: Only one thing has been resolved is the FSA has been signed for many projects which was not acceptable. Even NTPC has not signed it because FSA needs revision. It is the private sector people who have gone and signed the FSAs because they had no option. Coal India said they will not get coal. So at least they are able to run the plant with 40-45% capacity. That’s the only thing that we know how the document which is not a bankable document, but at least we have a document which has being signed by Coal India which needs revision. I understand in the next board meeting they are considering the revisions we all have suggested. Q: If it is not bankable, have you atleast seen an improvement in the actual amount of coal that is coming out of Coal India or from any other source for power producers? A: Not on all plant basis, but some plants have got coal. There has been only a slight improvement in the coal supply but projects, which are commissioned after 2009 are not getting coal more than 40% of their requirement today. Q: What according to you would be a possible and realistic scale down in the capacity addition of most power companies because we did hear that NTPC has reduced their targets quite significantly and there are brokerage reports also indicating that for FY13 itself, they might miss it by around 700 megawatt atleast? A: In the private sector majority of projects have been stalled because they are not taking up new investment. They are waiting for clarity on policy and regulatory framework. All projects based on imported coal have been stalled; all projects based on linkage coal are not taking off. The entire private sector is now watching government’s action. It is only when there is enough adequate clarity on the regulation and the coal front, will they move forward. _PAGEBREAK_ So, the bankers have stopped disbursing. The banks are saying first show me the FSA, without the FSA, you cannot have bank loans.  Coal India says show me the PPA, I will show you the FSA. There is complete logjam between different parts of government, ministry of coal, ministry of power, CEA, state government and the banking fraternity.
We need to resolve all these issues and get clarity on whether it is 80%, 85%, 60% from where will the balance coal come, how will the blending cost impact PPAs. All these issues need to be resolved by coordination between ministry of coal and ministry of power. It is high time they sit down together and clear out the entire regulatory space because 12th plan targets would suffer very adversely. We may end up back to 20,000 megawatt in the entire 12th plan if government continues this way. Q: You were speaking about the FSAs not being bankable and that you are looking at some changes in the up coming board meeting of Coal India itself. What is steaming them or preventing them from becoming bankable, is it that penalty rate cut off coming in at 65% and what changes are you expecting? A: One is the penalty rate because today the penalty rate is so negligible it doesn’t make any difference. Secondly the force measure (FM) clauses in the agreement are very frivolous. If Coal India doesn’t get power supply they can back out, if Coal India supplier doesn’t supply particular spare part they can back out. Those FM conditions are mockery on that, so we have made our representation, MoP has said it, NTPC is saying it, so I suppose some sanity will come in the board and they will make this force measure conditions inline with the best international practices. Q: What is the next that you are expecting Pulok Chatterjee Committee or from the complex of people BK Chaturvedi Cabinet Secretariat all of them together what is the next step that you are expecting to get resolved or addressed? A: Basically the main step which is impacting the entire sector today is the fuel availability whether it is coal or gas. We expect clarity on both these issues as to how power projects will meet their requirement of fuel and in medium term we need to import gas, we need to import coal. Government has to work out the impact on the pricing and then come out with a formula by which these prices can be translated into power prices and to the consumers. Secondly, is the distribution sector where Chaturvedi Committee report is working, we need to restructure their debt. Unless the debt is completely taken away from the balance sheet, I don't think that discoms can become viable. So, instead of saying 50% debt restructuring, they have to work on each state basis and ask states to remove it from their balance sheets. So that they can atleast become breakeven in next two-three years and start generating profits. The other day when we had acute power shortage in the country, there was sell bid in the power exchange, there were no purchase bids because of affordability. The moment you have coal shortage, you will have the issue of blending prices and power prices going up and affordability issues. So, affordability of power and the pricing and the adequacy of fuel are the issues we are looking forward from these committees.