Power demand looking up, solar biz orders improving: Tata Power

Performance at the Mundra project has improved due to lower coal prices and better recovery of fixed cost, said Anil Sardana, MD & CEO of Tata Power. Variable costs at the unit, however, might continue to see under-recovery as long as fuel prices continue to remain above the prices at which the company bid, he added.

On the improvement in power demand, Sardana said, there is traction as India has lot of pent up demand considering the low per capita consumption and schemes like UDAY will help in improving consumption. "It is only a lack of interconnectivity and reliable networks and the fact that industrial customers do not get continuous supplies that the demand has stayed muted,“ he added. Similarly, merchant power rates, he said were lower due to oversupply and will stabilise as demand improves.Below is the verbatim transcript of Anil Sardana’s interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy.Latha: A big turnaround actually in Mundra. Is that maintainable?A: The coal prices did help us. Since the coal prices are low and also what happens is since the availability factor we maintain at 80 percent as I had been maintaining the last quarter sees 80 percent number being touched and therefore you recover the full fixed cost and that helped in the last quarter. What you will see is the aggregate of the whole year is maintainable.Latha: Will you still have under recoveries from Mundra or will you be able to recover the fixed costs on a sustainable basis in the current year as well FY17?A: Let us segregate two parts. The variable cost will see under recovery as long as fuel prices continue to remain above the prices at which we bid at that time. So, let us say about USD 35 or so in the present context. Since the prices are still above USD 50 there will be an under recovery.As far as fixed cost is concerned that crossed subsidised part of the variable cost because there we are still able to do much better and with the result the two put together gave us much lower losses compared to the previous year.Sonia: We were talking to Anil Swarup just a couple of days ago and he mentioned that the demand for the power space is increasing quite a bit and even the core sector data that we got is indicating that. What is the sense you are getting, are you seeing an uptrend in the power demand over the last couple of months or so and what about the merchant tariff rate, is there any stability that you are noting there?A: Two parts to your question. One is the power demand really jacking up and the other part you had asked for was merchant power rates moving up or not. As far as power demand is concerned be mindful of the fact that country still has one of the lowest per capital consumption. So, there is a lot of pent up latent demand which has to be met. It is only because of lack of interconnectivity and reliable networks and the fact that industrial customers don\\'t get 24x7 we have these issues. Otherwise it is not that on a generic basis we can\\'t consume more. As long as networks will improve - now that UDAY scheme has been launched and a lot of push has been given to the discoms you will see this improvement in consumption. It is bound to happen because we are still consuming at a very low level.As far as merchant power rates are concerned again it is a function of demand-supply. Since there is oversupply at this stage merchant rates had actually gone very low. But once the demand starts to move up you would start seeing that the merchant rates will stabilise at a reasonable number.Latha: Let us take one by one the causes that you are saying that might improve the power demand situation. Grid, are you able to sell to larger places, do you expect therefore power demand to go up because the grid is now getting expanded, north-south grid connectivity has come by, there are more grid connectivities coming in the east as well?A: There are two factors on the grid. One is the capacity expansion itself which Power Grid has been doing a great job. And also states at this time are focussing on transmission expansion as well. However the independent system operator which is Power System Operation Corporation (POSOCO) has actually kept a lot of margins in operations of the transmission system with the result a lot more which could get transmitted are not getting transmitted.The conservative approach needs to be checked independently by some experts and that is what has been the demand of the industry. Because circuits which actually can carry a large amount of power are being utilised at something like 60-65 percent. So, these are the two factors. Once that is taken care of this country would really be able to virtually achieve general network excess because people will be then able to dispatch power from excess supply region to deficit regions.Latha: That apart, apart from the grid, we have not heard of any power purchase agreement (PPAs) being floated by any state electricity boards (SEBs). The UDAY scheme is just a year old and discoms are still laden with more cost than revenue. Do you see any PPAs getting floated, do you see any power purchase on the anvil?A: You are bang on. We haven\\'t seen too much activity on the discom side. The UDAY scheme certainly is going to help them in terms of tiding over their past crisis of a lot of receivables that had got accumulated at their end. So, those parts will be paid off. Perhaps Coal India will get paid off, railways will get paid off. So, the initial part will be a change where some of those suppliers where the long queue of payments outstanding they will be helped.More important part is that UDAY scheme will succeed provided there is an operational improvement. And if the distribution companies do not stem the rot, do not actually stop the leaking bucket then in that case not much could be done on a long term basis because while it is written in the UDAY scheme that the future losses will not be funded by the banks but hitherto before also it was states which were actually paying out of their own budgetary allocation to discoms. That spree will continue. So, we will see another accumulation of losses. So, that is a matter of worry. Operational changes have to happen.Sonia: I wanted to ask you another big trigger that the street is watching out for which is on the Mundra compensatory tariff. What is the status on that, when is the next hearing and when do you expect the final order to come through?A: You saw in the month of April Appellate Tribunal for Electricity (APTEL) coming out with a positive order in terms of saying that it is a force measure under which we should be compensated. Now the matter is with CRC, they have been given three months time and they started to hear. So, we will soon assume that within three months they will come out with their calculations in terms of what should be the compensation for force measure.Latha: Your solar unit that I believe is in the black. So, is that solar unit by itself profit making and what is the scale up over there?A: The last quarter, the quarter that we exited, they certainly were in black and now they have reasonable amount of orders and we are hoping that they will continue to do well. As we all know there has been tremendous push from the government in terms of more and more solar capacity addition. So, they are amongst order and also they have been getting a lot of export boost. So, we are hoping that on both the front they will be able to do better.Latha: We made a song and dance about SunEdison now bidding for a PPA at lower than thermal units or lower than Rs 5 or whatever it was. Is that a sustainable trend, will solar really be competitive with thermal in your case?A: There is no doubt about the solar tariffs have been coming down. Sustainable number but not just dependent on the solar equipments, it will also depend largely on the cost of capital. Some of these entities that you mentioned assumed very cost of capital and while the capital cost was correctly assumed to be lower because these were offshore funds but what wasn't assumed was the exchange rate and there was no hedging cost perhaps provided in these and that is what caused the challenge. Now, if you consider both you get virtually to the same cost of capital as in India, perhaps marginally lower. Therefore that has to be one of the key factors in the entire decision making process for sustainable tariff.Latha: This earnings before interest, taxes, depreciation and amortisation (EBITDA) growth of 17 percent is that what we should expect in the coming quarters, that is what you did in the fourth quarter?A: I won't want to give a guidance, but at the same time we have been posting very good operational performance and we hope that our teams will continue to put up that in the future quarters too.