NIB good trigger; will welcome coal price cut: Adani Power

In an interview to CNBC-TV18, Ameet Desai, director, Adani Power explains the impact the National Investment Board (NIB) will have on the market and the industries. He says, "If the real NIB materialises, where you have a single body and the compliance is not diluted but the predictability in terms of process time is really high, then it would be a big trigger for the country as a whole."

Additionally, Desai says any reduction in coal prices will be welcomes by him and the  Indian power sector too. 

Also read: BHEL seeks levy on imported solar power equipment

Below is the edited transcript of Desai's interview.

Q: There has been this constant talk about the National Investment Board (NIB) coming through and project clearances actually happening. As someone who invests a lot in the country, do you think the NIB is a significant trigger? Do you think project clearances will materially improve and execution will pick up once it’s been cleared?
A: Yes. If the format in which we are reading about the proposed NIB, if it comes into existence and if it really becomes a single body or a single window which will take care of all the aspects for the major projects, then it would really be a trigger.
The current projects which are large in size and complex in nature really go down a path of uncertainty in terms of time-lines and outcomes. So, if the real NIB materialises, where you have a single body and the compliance is not diluted but the predictability in terms of process time is really high, then it would be a big trigger for the country as a whole. Q: In conjunction with that, execution slowdown is one because of government clearances, the other also is interest rates by the Reserve Bank of India (RBI). There is a wide expectation that at least 100 basis points going down next year. You think that is a catalyst for reviving the investment cycle? Does 100 basis points in the project math turnout to be significant enough for people to start looking at newer projects again or is it not significant?
A: Interest rates to some extent would have an impact on the financial analysis for the project, but 100 basis points would not drastically alter the project return. The whole issue is largely contingent upon inflation on one side and fiscal discipline which the finance minister is quite zealously talking about in terms of delivery.
If inflation comes off and if the market sees the fiscal discipline really being implemented, then rate reduction would really be a good trigger to get several investments on board. That would change the climate considerably than what we are currently into. Therefore expectation of rate cut is always there, but given the current inflation numbers and the situation that we are placed in, I would not predict 100 basis points cut in the calendar 2013 unless something drastically alters from Q2 onwards of 2013.

Q: How do you expect coal prices to pan out? Will 2013 be a year when average coal prices globally will be lower than what they averaged in calendar 2012? Would that really benefit Adani Enterprises since you mine a lot of coal whereas it perhaps will benefit Adani Power which not been terribly blessed with domestic coal would benefit from global coal being cheap?
A: Any reduction in coal prices globally is a very welcome step or development for Adani Power because that’s the input for us and the coal cost is a major cost. So certainly that would be a great positive for Adani Power. If I were to share my own view about coal prices, I think coal prices have already come off considerably from the highs that we've seen in the middle of 2012 and the last but one quarter in 2012.
If we are talking of Richards Bay as a global indicator which is currently hovering in mid 80’s, if that is the current trend, it would be range bound plus or minus 10 percent from here. That bodes well for Indian power sector in general that we have some predictability of coal prices going into 2013. Q: How would the arithmetic of Adani Power work if that is indeed going to be your price of the coal you import? What are the developments in terms of signing of Power Purchase Agreements (PPA)? Are you seeing more buyers coming your way?
A: We have long term PPAs already in place which are in excess of about 6000 megawatts, government utilities of Gujarat, Maharashtra and Haryana. We are not seeing major projects being announced, except for a few which would obviously get the buyers online. In terms of likely impact of coal prices on Adani Power, once we have the full 9,200 megawatts in operation, which should happen during the next calendar, it would really be a significant impact if coal prices hold on or they go down.
_PAGEBREAK_ Q: The discussion on coal seems to be in the domestic space particularly with coal price pooling. Do you think something like that is implementable, do you think it can be implemented in the next year or so?
A: Yes this is implementable, but as they say the devil lies in the details. Industry has given its inputs to the planning commission and the respective ministries on this particular issue. It is hopefully a matter of time before this becomes a reality. So, one really has to wait to know the details as to in what form this finally gets implemented, hopefully it should be a positive move.
 
Q: What is the total amount of power that you will sell in the second half? What is the average merchant power prices you are expecting?
A: This is difficult to say in terms of what is the total power that we would sell in the second half, but we have 4600 megawatts at Mundra up and running. We have 1300 megawatts which is synchronised and part of it is running regularly. We expect to synchronise a couple of more turbines at Tiroda before the end of this fiscal. The exact number of power units would be hard for me to tell at this juncture. The merchant prices have generally remained in the vicinity of Rs 3.75 to Rs 4.25 during the first two quarters of this fiscal. We have seen some dip in the Diwali time, because the industrial load actually goes off, but now there is a firming back in the demand and the prices have started moving up. Q: How much of the capacity is fueled by Fuel Supply Agreement (FSA) coal or Coal India coal?
A: It would be difficult to give an off the cuff number, but eventually we would have a good healthy combination of almost 60 percent of the coal coming in from the domestic sources and about 35-40 percent coming in from the international sources. Q: Tiroda III and Kawai power projects don’t have Letter of Assurance (LoAs). Do you think anything of that sort is possible in the near term, given the government is reaching out to power companies?
A: Tiroda has, as a matter of fact, fuel supply which has been given as tapered linkage and they have also entered into a FSA. Kawai, would get covered in the next five year plan as articulated by the government. Q: You need more funding at Adani Power, given the fact that you had losses. You think you will need funding particularly from Adani Enterprises because you already have an approval from that company to raise the stake up to 75 percent?
A: We would take a stock of the situation as we close this fiscal and move on to the next. It would be a hard and forward looking statement to make at this juncture. We are quite committed to this business. As Adani Enterprises has already made an announcement that the current promoter holding, that is Adani Enterprises, would be brought back to 75 percent from 69 percent
 
Q: Are you expecting any increase in Power Purchase Agreement (PPA) prices by any of the distribution company (discoms)?
A: There is a matter which is subjudice before the regulatory commission. So at this juncture, it would not be fair for me to give any comment to that particular question. Q: In the December 4 meeting, was there any important takeaway that you would want to share with us from what the Central Electricity Regulatory Commission (CERC) had to say? Are you hopeful about the CERC taking a positive stand even materially so if we can raise the prices?
A: Well we certainly are hopeful and beyond that it would be very unfair for me to comment on this issue, because the matter is being looked at by the regulatory authorities themselves. Q: Any steps to cut leverage? Are you reducing capex in any fashion?
A: We don’t really have the imminent requirement to cut back the debt because the debt in the infrastructure project is nothing unusual to see them at the current levels where we are at the consolidated level less than 3.
And as the projects get rolled out and the cash flows start coming in, the debt starts getting repaid and therefore comes down. There are refinancing options that we keep working on and then they keep materialising on and off. Therefore, that also changes the texture and tenure of the debt. We have said that our dilution of the promoter group in the companies, namely for Adani Enterprise into Adani Power and Adani Port and promoters holding into Adani Enterprise is something that we are working on. Mix of all these steps would further make the position stronger.