Cos will reflect reform boost in 4-5 months: Feedback Infra

Hailing the announcements made by Cabinet Committee on Investment (CCI) on the stalled infra projects, Vinayak Chatterjee, chairman, Feedback Infra says the move will help improve the mood of the power sector. The CCI on Monday gave a go-ahead to 28 stalled mega power projects for expeditious clearance.

Speaking to CNBC-TV18, Chatterjee says most of the CCI announcements were largely focused on the power sector and the government is now moving in the right direction.

"Banning Chinese ECBs on power financing and mandating that UMPP case-II orders can only be placed on local suppliers, which is Indian manufacturers and clearing a slew of these projects together has significantly improved the mood in the power sector,” he adds.

The immediate impact of these decisions, Chatterjee adds, will be seen on companies’ books in the next four to five months.

Below is the edited transcript of Chatterjee’s interview to CNBC-TV18.

Q: Having read a little bit more on those Cabinet Committee on Investment (CCI) announcements the fear is that some of the projects this time were also cleared last time but developed new glitches. Coal India has been asked to sign Fuel Supply Agreement (FSA) after FSA. I was just looking at their historical growth of coal output. It is 3.8 percent in the previous year and before that 5 percent. Even if they sign FSAs do they have the wherewithal to supply coal?

A: Yesterday's announcements of the CCI were largely focused on power other than some discussion on the road sector in terms of back-ending premium payments. No decision yet had been taken on allowing back-ending, because on the road projects Finance Ministry, Law Ministry, Planning Commission and others had objected to the terms of contract being reset as they thought that it was not fit and proper.

The chairman of National Highways Authority of India (NHAI) has been extremely persistent with his argument that in case such accommodation was not made in today's very strange circumstances, the sheer impact of cancelled projects and delayed projects would be too huge to stomach and create some issues around public-private partnership (PPP).

The cabinet has not yet taken a decision, but we are expecting a favourable decision on back-ending premium. If that happens, a slew of road projects will once again get back into action.

We will have to read a lot of nuances in power beyond the CCI, because what the CCI did is that it cleared fresh and maybe some older projects with fresh glitches across two broad dimensions. The first one was related to clearing glitches on forest and environment, the others were related to FSA.

In the power sector, there are two other major developments that have happened. Firstly, the cabinet has cleared the standard bidding norms for case-II bidding of two major Ultra Mega Power Projects (UMPP)- Chhattisgarh and Orissa with the proviso that all the orders have to be placed on domestic suppliers like Bharat Heavy Electricals (BHEL), Larsen and Toubro (L&T) etc.

That indeed is a very welcome step from the capital goods suppliers' point of view. I also feel somewhere the market has missed announcement by both the Finance Ministry and the Reserve Bank of India (RBI) that in future, no further Chinese external commercial borrowings (ECB) will be allowed to be brought in, linked to imports of power equipments. So, banning Chinese ECBs on power financing and mandating that UMPP case-II orders can only be placed on local suppliers, which is Indian manufacturers and clearing a slew of these projects together has significantly improved the mood in the power sector.

Q: Just to belabour that point you raised about the case-II bidding allowed for UMPP projects. Neither the private equity players have the equity stomach, nor banks have the stomach to give more debt to new UMPPs. We really have to be talking about those that are already under construction. I am not very sure that because it is going to be case-II bidding people are in any financial position to put in fresh money.

A: We are talking about each UMPP being Rs 20,000 crore. Let’s assume that 66 percent is debt. So, two-thirds of Rs 20,000 crore that is Rs 12,000-13,000 crore is not so much money that the system cannot lend.

I think the important thing is to lend to credible implementers. Remember, in this case a lot of risk has been taken out compared to earlier UMPPs. The earlier UMPPs are in trouble because it was a combination of what is called capacity charge, which means a fixed cost to building the plant and the risk on the price of fuel whether domestic or imported.

In the case of these new bidding norms, fuel has been completely taken out of the equation. The only bidding parameter is really how efficiently one raises capital and how efficiently you run your plant. A large element of the risk has been taken out. A combination of all these factors to my mind will see fair amount of lenders lining up as long as the promoters are credible and their balance sheets have the ability to take that load.

Q: Out of these Rs 1.9 lakh crore projects that have gotten a clearance from the CCI how much do you think will actually take off on the ground? We have seen so many of these announcements in the past and now with elections around the corner the fear is that this will only remain announcements and may not actually see any fructification on ground. When do you expect the Power Purchase Agreements (PPA) for these projects to get signed? The coal supplies will not start until the PPAs are signed.

A: That is tricky but true, because now FSA is linked to implementation of projects and delinked from PPAs. That is strictly not correct. The fact that after a long hiatus the entire system from the Prime Minister downwards is actually micromanaging clearances of projects is a welcome step.

The question really is that why these projects were stuck in the first place, that we seemed to have forgotten.

The fact that significant political pressure, micromanagement and a clear desire from the Prime Minister's Office (PMO), the Finance Minister, Planning Commission to everybody in power today to get things moving is very, very palpable in Delhi. One can actually sense people breathing down other peoples' necks to get these projects moving.

How far these clearances will impact private players? What does a clearance mean? The clearance would mean that people will star placing orders for construction, plant, equipment. That to my mind can easily be four-five months away. So, all that it does now is that it increases sentiment, it increases the feel good factor that the government is on the job in terms of removing logjams. But the real impact in terms of people's order books is actually going to be four-five months down the line.

Q: Would the FSAs really result in Coal India being able to supply?

A: There are three ways in which one can get coal today. One, Coal India committing to give a 65 percent domestic coal and that 65 percent keeps increasing with each year of certain percentage. Coal India also commits in its FSA to give imported coal. Finally, one has the ability to get imported coal.

So, the situation in coal, surprisingly for all of us is far less acute than it was thought earlier. There are innumerous instances of 9 state governments writing to Coal India to stop dispatches, because there are stocks built up at the states in the power plants and imports have started coming in.

The critical issue which was coal earlier was shifting the capacity of the discoms to pick up the power generated at commercially viable rates. So, in a sense the compass has shifted. From coal being the crisis point, it is the discoms today and their ability to pick up generated power which has become the crisis point.