Not one to be overshadowed by the power play at Delhi, where the newly-appointed Delhi chief minister Arvind Kejriwal walked the talk by reducing electricity tariffs in the state, Union power minister and Congressman Jyotiraditya Scindia said because of the multiple reforms brought about by his ministry, the sector was no longer in a “gloom and doom” phase.
In an exclusive interview on CNBC-TV18, the power minister clarified that setting power tarriff was a state subject and Electricity Act, 2003 allows states to provide subsidy to consumers. He drew attention towards achievements in the area of power generation and called the connection of the last-remaining southern electricity grid to the national grid as a “big positive” for the sector.
Also read: National power grid sync: What it means for the South
Scindia said he was hopeful power offtake would pick up after loans at several distressed state electricity boards (SEBs) were restructured recently.
Referring to the recent court decision allowing Reliance Industries to hike the price of gas to USD 8.4 per unit, he said the new price would make power generation “unviable” and “uncompetitive”.
When asked to comment on the Delhi government move to provide 50 percent power subsidies to consumers, the minister sidestepped the issue by saying the central government had no role in deciding power tariffs for states.
Below is the transcript of the interview.
Q: Power is in the headline for wrong reasons. After a series of difficult steps taken by the government, we have now the Aam Aadmi Party (AAP) announcing subsidized power and that has caught on with two Congress ruled states announcing rebates. Are you sure that the discoms and the state government in both these states are capable of this kind of a subsidy regime?
A: I thought you are going to say that power is in the news for all the right reasons because of the steps we have taken over the last four-six months.
[The initiatives we have undertaken include] a financial restructuring package for the discoms, redrafting of standard-bidding documents for case one or case two -- based on which we received bids for two ultra mega power projects in Cheyyur and Odisha – and the case of south grid connectivity, which was three months ahead of schedule.
The southern grid was connected with the other four grids making it one synchronized grid. Probably in the next two years, it will become the largest grid network in the world and will be able to transmit almost 66 megawatts (MW) of power.
With the mega power policy amendments we have pushed through will give a new thrust to large power projects going forward, both with their capacity and extended time to execute.
As for your question, as minister of power in charge of setting policy for the government and for the nation, I cannot and do not interfere in terms of setting power rates. That is done by the respective state electricity regulatory commissions and is between the discoms, the commissions and the consumers.
What the tariff policy and the Electricity Act mandates is that any state government can give a subsidy to any class of consumer without a problem.
As long as a discom, pari-passu, is not worse off and therefore that subsidy will be cash infusion from the exchequer of that state government to that Discom.
Q: My point is, with the political lingo shifting towards lower tariffs or not hiking tariffs, are you sure discoms have the ability to withstand the financial solvency to maintain financial solvency in the face of CM saying they will not pass on tariff hikes?
A: Let me say again that the tariff is set by the electricity regulatory commission. The discoms and the power producers and consumers petition the commission based on which the commission takes a decision.
Our FRP mandate says that every year, there should be a tariff setting mechanism in place and for the first time last year all states set tariffs. As a result of the FRP, in the four states where it has gone through, almost Rs 95,000 crore worth of loans that have been rescheduled: Haryana, Rajasthan, Uttar Pradesh and Tamil Nadu. You have seen cash solvency on the balance sheets of discoms over the last three months.
But at the same time, every sovereign state is completely empowered to take decisions with regard to subsidy. However, it has to be funded by that state government and therefore if the discom is not worse off, I do not think it’s something that you and I need to spend an inordinate amount of time on.
Q: You are confident that the extent to which you have empowered the state regulators through various processes in the last five years and the bailout packages signed with the banks are enough protection against the discoms running into any insolvency problems. That is your point, right?
A: Absolutely.
Q: The issue that has remained unresolved is the one of gas producers. Your government has taken the decision that gas prices are going to increase from all administered gas prices as well as the production sharing agreement gas fields to around USD 8. We do not know the ultimate price but it may be around that figure. Power producers with gas based projects tell us that that makes it unviable for them. Are you expecting subsidy or do you think they will be viable?
A: I have said this before. It is clear that gas price greater than USD 5 per mmscmd is not a viable input for gas-based power projects going forward.
We have to ensure that we get a regular supply or rather an extended supply of gas. We have in the Empowered Group of Ministers (EGoM) clearly articulated that any gas beyond 31.5 mmscmd, will be not given to the fertilizer sector but to the power sector. So, over the next two-two-and-a-half years we are expecting almost 11-12 mmscmd of additional gas will be given to the power sector.
As far as the current gas allocation is concerned, there are some administered pricing mechanism (APM) and non-APM gas fields. Therefore, we said that the gas allocation currently given to the power sector has to be priced at less than USD 5 mmscmd otherwise it is not a viable input and that matter is being discussed in government.
Q: Even if they get somewhat of a better share, it is bound to be that both the administered gas and the gas under production-sharing agreements will not be significant enough to give the power sector enough. After all, the fertilizer companies will have a giant share of gas from both these sources. So how do you expect the shortfall to be made out?
A: No. Gas beyond 31.5 mmscmd will not be supplied to the fertilizer sector. It will be supplied to the power sector. So for the next three fiscals, 31.5 is the cap for fertilizer and all additional gas should be supplied to the power sector.
The key issue is of pricing. That is something we are discussing and debating that as an input anything above USD 5 mmscmd doesn’t make sense for the power sector because then the power will not get scheduled.
Q: How much excess of gas do you expect because there will be steel claimants as well?
A: 11-12 mmscmd over the next three fiscals.
Q: That would suffice you think for the gas based power plants that are already asking for gas?
A: Unequivocally no. We are running at 25 percent plant load factor (PLF). So we are trying to do the best we can. This is one of many solutions. Additional gas is one solution, we are looking at the concept of gas pooling which is a possibility but those are all issues under examination.
What we have achieved is a decision to ensure that any gas above 31.5 mmscmd over the next three fiscals get supply to the power sector.
Q: That was what I was driving to as my next question. What is the progress on gas pooling at all, more imported gas and the gas price pooling? We haven’t heard any update on that and obviously there would be resistance from other users of gas?
A: No, I don’t see that being the case. I think it has to do more with the economics of how big the base is of gas on which to pool. You very well know that as far as coal is concerned, we were successful in putting in place a very robust pass-through mechanism for imported coal as a pass-through for extended raw material for coal fired power plants.
That was also because you are running of a very large base of almost 380 mmtpa on coal and therefore even if you import 15-20 percent, it is a huge 75-80 million tonne per annum of coal.
However, in the case of gas, you are running a much lower base and therefore the economics of gas pooling has to make sense because again comes the issue of whether the high-priced gas becomes a viable raw material input or not. This is something that is under examination under my ministry and the ministry of national gas and petroleum. We are working on it as we speak.
The third leg, which I am evaluating on the tariff policy and the electricity act is to see whether we can look at substitutability for picking power and to use these gas power plants as pickers so as to make them more viable because if you use them as pickers then even if you use imported RLNG as a raw material. Your output power is Rs 11-13 a unit and as opposed to diesel generating sets, which produce Rs 20 a unit, it is still a viable alternative. But I think that is something that is much more work in progress as we speak right now.
Q: When do you think we can expect any decision that will incrementally make it better for gas companies, some decisions on imports and pooling, can we expect it by May?
A: One decision has already been taken, which is with regards to the next three fiscals in terms of additional gas. The other decisions are work in progress. I am not in the habit of giving a date and a time and then reneging on that. Suffice to say that it is receiving my full and complete undivided attention and I will come to you with the results as soon as I can.
Q: Let me come to the coal-based plants. A lot of fuel supply agreements (FSAs) have been signed, not everything has been put to test because Coal India’s productivity growth has not been very good but coal supplies have been coming in. Now the problem appears to be the discoms’ inability or reluctance to buy too much power. Do you see that improving?
A: I think that situation has already improved as we speak. You are correct that we have been successful in achieving a tremendous amount of traction in terms of signing those FSAs. 172 FSAs were pending for almost about 78 gigs. I am glad that out of the 172 FSAs as on date, 157 FSAs have been signed in the last two and a half months.
Almost 71 gigs of capacity has been tied up with FSAs, the balance 6.5 gigs and the balance 15 FSAs we are working on and hopefully over the next three-four weeks, we will close whichever can be done.
As far as the scheduling of power is concerned, there were two issues, which delayed the bits coming into the market. The first was a fact that we were working on the standard bidding documents (SBD) in case one -- in terms of the revision to those SBDs, those who were put out by us almost two and a half to three months ago.
The second is the fiscal situation of these discoms itself was very dire and therefore they could not procure more power. With the FRP being successful in four states of Haryana, Rajasthan, Uttar Pradesh and Tamil Nadu, bonds being issued of almost about Rs 95,000 crore -- and with Jharkhand, Andhra Pradesh and Bihar in the pipeline.-- I am hopeful that the scheduling of power will rapidly improve as we go forward.
Q: Any timelines on that?
A: Cabinet has already approved it. So now, it is up to the states to speak to their bankers, we have already got a transitional financing mechanism (TFM) of sub 9 percent already in place, which is a very attractive rate for them. They need to speak to their bankers, tie up at the bankers’ end and then they are all set.
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