Post UDAY saw uptick in demand for power, issues of discoms being addressed: REC

Below is the verbatim transcript of the interview.

Sonia: What is your own expectation from the new power policy that is expected very soon? What are the top two-three things that needs to be addressed at the moment?

A: I am not privy to the policies and the decisions of the government. REC is a beneficiary of such decisions. As we speak today, the power sector is going through a major transformation across the value chain. You have seen what is happening in the renewable sector. There is a major initiative of UDAY, which is addressing all the issues relating to the discoms and the distributions which had traditionally been a major bottleneck and REC has been playing a major role there.

Deen Dayal Upadhyaya Gram Jyoti Yojana for which again REC is a coordinating agency, is pushing ahead with rural electrification. We have already completed 12,705 villages’ electrification since the programme started by Honourable Prime Minister year and a half ago, we have less than 5,000 villages to go. So I think the power sector is experiencing a transformational movement.

Latha: I just wanted to know if lately have you noticed any improvement in PPAs, any increase in power buying?

A: We have surplus power in this country today, 310 gigawatts. The peak demand is still at 160 gigawatts. Major investments are being made in modernising the transmission and distribution systems.

The demand is growing on a compounded annual growth rate (CAGR) of around 7 percent per annum. This will certainly pick up with the UDAY interventions. This is a continuous process but what you see is the profitability of the state discoms, we see that the power sector demand has gone up in several states after the UDAY has been introduced. The profitability is improving, the ATMC losses are reducing.

Latha: We do not get that from the bankers. Can you give us some numbers in terms of ATMC losses decline and we have not heard tariff increases, what was expected after UDAY was that every year we will see tariff increases, we haven’t. Can you tell us which discoms have turned profitable?

A: Let me explain this bit more clearly. The increase in tariffs is the determined by the regulatory commissions. Every state government which has come on board with UDAY which is virtually every state has filed for increase in tariffs as a revision of tariffs. Bihar has already done, Chattisgarh was increased by 12 percent last year, 20 percent this year and the similar is happening across and then there has been a tariff increase. Chattisgarh is one clear example, ATMC losses have gone down demonstrably, the cost of power has gone down demonstrably in states specifically like Jharkhand, Bihar, Rajasthan, Madhya Pradesh. Andhra, Karnataka, Maharashtra, Gujarat have always been doing better. There is a progress and Haryana has demonstrated -- one of the discoms this quarter has demonstrated a clear profitability which has been traditionally loss-making. This does not happen overnight.

Sonia: Your disbursements had fallen quite a bit in the quarter gone by and you are sitting on a base of around Rs 12,000 crore, what could the disbursements be going ahead and what is the update as far as asset quality is concerned?

A: Let me say two things and I am not sure how you got this figure. Both our sanctions and disbursements have been growing consistently around 15 percent. We expect it to go to 20 percent. We are expecting a disbursement to be averaging around Rs 55,000-60,000 crore by the time we close our books this year. We still have another three days to go. This figure of Rs 12,000 crore is certainly not on the books.

Looking at the NPAs, we have the lowest among all the financial institutions not only in this sector but in any other sector, our NPAs are less than two percent. It is around 1.8 percent and we are making very consorted efforts to see that the stressed assets issue is addressed comprehensively. These are not ad hoc decisions that can be made overnight. All this adds to the resilience if you look at the market and see the performance of the REC. this is based on the fundamentals of the sector and the performance of the organisation.

Latha: We invited you to know about the mega power policy which we are expecting anytime now, what would you want in that policy?

A: We would like to see a comprehensive policy that would address some of the concerns that the several of the financial institutions have which relates to this NPAs and in the longer-term, the measures to pick up demand which is on the anvil and the PPAs would follow.

Latha: Is there anything on the anvil in 2017 first half? Is there any open PPA from any state?

A: There is a lot to look forward to. The states will have to take a call on PPAs. We are now in a different eco system where there is a surplus power in this country.

So the states have to take a call on this. That is the judgement which the states will make and we will certainly work with the states, with the utilities to see that they remain profitable and they provide – as the government wants 24/7 quality power to all citizens and all consumers.