Plan to make holding co debt free in 2 yrs: Essar Power

Essar Power is in a comfortable position and plans to make its holding company debt free in the next two years, says company’s Executive VC, Sushil Maroo.

Speaking to CNBC-TV18, he said that the power sector expects a more benevolent approach from financial institutions and the RBI as the industry is going through a rough patch where completion of projects has got delayed and demand is short.

Commenting on Essar Power’s operations, he said that the company has a total capacity of 6100 MW, of which 4600 MW is operational.

Nearly 50 percent of the operational capacity is used for captive consumption, he added.Below is the verbatim transcript of Sushil Maroo’s interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18. Nigel: Let’s get some brief details in about Essar Power. What is the total capacity, what the operational capacity and also how much of your capacity are you using captively? A: Essar Power is the fifth largest private sector company in India right now though it is unlisted, so it is not very much known in the market as such. We have a total capacity of about 6,100 megawatt and out of that about 4,600 megawatt is completely operational. Some of the plants which are under construction phase will be completed shortly. Out of the total 6,000 megawatt capacity we have about three independent power plant (IPP) units and then we have three captive power plants and we have one gas based power plants. So, it is a mix of many things. We have multi fuel complex power plant, we have a completely import coal based power plants, we have a domestic coal based power plants, gas based power plants so it is a mix of all kind of raw materials. Reema: Could you tell us off this 4,600 megawatt how much of it is used for captive consumption and also how much more capacity will get operational in FY17, if you could give us these two numbers? A: Right now out of this 4,600 megawatt the larger part is used for captive. Almost it is closer to 50-50 percent. In fact we have in our power company about 1,000 megawatt which is for captive plant. We have Hazira, in Hazira, we have Essar Power Hazira Limited which is about 270 megawatt, about 135 is operational which is captive for steel. We have in Orissa, Paradip - Essar Power Orissa Limited which is right now 60 megawatt which is for captive. We have IPP like Essar Power Salaya Limited in Gujarat again a 1200 megawatt which is IPP where 1,000 megawatt is sold to Gujarat Urja Vikas Nigam Limited (GUVNL) and the rest is merchant in the market. Then we have in Mahan 1200 megawatt where 600 megawatt is completely operational, ready to go for. Nigel: Could you tell us how are merchant rates panning out? There were some talks that may be there could be some pressure on merchant rates going ahead. I wanted your comment on this because the Power Ministry has revised guidelines for short-term power procurement. What is your take on that and also out of your total capacity how much of it is coal based and from where do you procure your coal? A: Merchant rate is based on market demand supply scenario, based on the availability of transmission line, but off late because of laying down of new transmission line the availability of merchant power has increased, the companies are in a position to sell power on merchant and the companies can buy power on merchant also. So, the demand side has increased in the merchant and that helped primarily in taking the power under merchant. The price largely depends on the demand supply scenario but because of the onset of the summer season we are seeing the rise in the merchant tariff that should remain at least for the next three months till we see the monsoon setting in. So, it is a completely different. What the government has talked off changing in the policy or changing in the methodology of the purchase of a short-term power from the market is the reverse auction. The Bengal has started and some more states will start so that is quite open and transparent system. It is a pretty good system and probably it will help the procurer and the generator both to come to the right kind of the price and sell power in the market. So, it is a pretty good system. That is pretty good from that angle. Reema: If you could just give us what is the current merchant tariff and you said that it has gone up because of the onset of the summer season. By what percentage has it gone up? A: The merchant tariff what we used to see, the last month was about Rs 2.50-2.80. Now we are saying it is going up to Rs 3-3.30. it is in that range right now and we can see a further rise as the temperature rises in the country. Nigel: Give us your PPA details also, how much of it has already been tied up and what is your outlook going ahead? A: The PPA in Essar Power, we have a PPA’s in various companies like I mentioned that for a captive power plant, we have a PPAs with the users or the refinery and steel. For independent power producers (IPP) I mentioned we have three IPPs. One we have in Gujarat, we have a PPA with Gujarat Urja Vikas Nigam Ltd (GUVNL) for 1,000 megawatts and for our Jharkhand project which is 1,200 megawatts, we are almost more 90 percent tied up with PPA, 750 megawatts with Bihar, the balance with the state of Jharkhand. And then we have another 1,200 megawatts in Mahan where we have a small PPA only on a very well cost with the Madhya Pradesh and we have small capacity with steel. But the rest PPAs we are still to tie up. But just as you asked about the outlook, for all these power plants, the outlook is pretty good. In fact, outlook has improved quite a lot in the last few months in India, because as I mentioned, we have a import coal based power plants in Gujarat and since the import coal price has fallen, it has fallen almost 20 percent in the last one year. And we see further 20 percent fall going forward in the next 2-3 years time. And that has really helped the company to reduce its very well cost. And in fact, it is quite heartening to see that the company which was losing money in the past, the first time it will be becoming a profit after tax (PAT) positive company. So, it is a complete turnaround story for that company. And the same turnaround story is visible in India also like we are seeing that the coal prices are falling in India, coal supply has increased, Coal India is improving its coal production by almost 8.5 percent._PAGEBREAK_ Reema: You will be PAT positive in FY16 or FY17 and by how much? A: We are PAT positive in FY16 already and most of the companies are PAT positive now in FY16 itself and FY17 will also remain PAT positive because of the improved scenario.