1-yr report: Piyush Goyal's ministries get top billing

He also lauded the government’s focus on renewable energy, saying that with the cost producing solar energy come down, it bode well for the government’s thrust in the area.

The demand side issues, however, may be difficult for the central government to solve, given that electricity distribution is a state subject, pointed out Harshvardhan Dole, AVP, IIFL. “The central government should, however, liaise closely with the state government to solve this,” he said.

Excerpts from the interview on CNBC-TV18.

Reema: How would you rate his achievement in the last one year and were there any things that he could have achieved which he has not in the last one year?

Khurana: Before we start rating, let’s see what the main issues were before the government when the government came to power, and how those have fared in last the one year.

The major issue was on the supply side, the fuel and transmission issues. Then there were legacy issues -- unworkable contracts in which developers were suffering under-recovery of fixed and variable costs, and of course, the third was bankrupt distribution utilities over there.

I must say on the first issue, there has been noticeable achievement by the present government. The fuel issues have been resolved to a very great extent. The mines had been cancelled, there were uncertainties. Mine auction was completed, Coal India Limited (CIL) has raised its production, which was stagnating for the last about five-six years and they have ambitious plan of touching about one billion tonnes of coal in the next five-six years.

On evacuation constraints, the government is working on held-back speed on evacuation constraints over there. Transmission has been handled. Power generation has increased. And there is a renewable energy surge on solar, wind and other avenues.

That is very important, because solar cost is coming down day-by-day. And if India reaches near its target of one lakh megawatts in the next five-six years, you will find solar costs will come down further and the frontier technology is working on storage [of solar energy] also. That is a very big push forward for green energy. You create employment and provide power to the rural areas.

My only suggestion in this regard is not to be obsessed with mega parks. What we have to do is go near the load centres. Because solar energy is available everywhere – the sun is everywhere. So, wherever we have land, good pieces of land, a small solar park can come up and supply power to nearby areas and feed into the grid. Because transmission is a big issue in green corridor. On the supply side issue, no one can fault it. The government has done a tremendous job over there.

On legacy issues, they are still hanging because there is a very difficult nut to crack because it has a moral hazard of working out the earlier contracted agreements. We understand, but we need all stakeholders to sit down and resolve because to revive investor sentiment in the power sector, the resolution of this issue is imperative.

Because if you see the pipeline, we have, this year we made about 23,000 megawatt [addition in power] which is a record. But in next three years, the capacity addition is going to decline and the thirteenth plan, the third year, there a is completely drought over there.

There is a last issue, which needs attention, which has not got attention because it does not come under the purview of central government, it falls in the lap of state governments. We need to work with them.

Today also, in the summer peak, where demand should be the highest, where Delhi is running about 46 degrees, Madhya Pradesh 45, Telangana, about 46, we have 57 thermal plants today, with about 10,000 megawatt of generation capacity, which have been asked to shut down. They have transmission link. They have coal but there is no demand for it.

My point is the surge on the supply side should now transfer the thirst to the demand side. We have to make sure that the consumer gets power and the bankrupt utilities do not shun supply. The situation today is we have power, the consumer wants power, but these utilities prefer to load shed than to buy power and supply.

These two issues would need to be handled by the government in the next three years. Then the power problems will be behind us.

Nigel: What are your key takeaways in the last one year? How would you rate the moves that have been done? We have been talking about lot of positives, anything more they could have done?

Dole: What was in the purview of central government that is imrpoving. The efficiency within Coal India and ensuring that the production of inexpensive domestic coal should improve that has been adequately done but the biggest bottleneck as Mr Khurana explained earlier, lies in the distribution sector. Sadly there is no direct control that the central government has over the state level distribution sector.

So, over the next 12-18 months or so the central government would need to liaise with the state government and at least facilitate more power off take from the state owned distribution companies. That is going to be key challenge going forward.

Nigel: There was a lot of talk that many power plants bid very aggressively in the first coal auction. What is your take on that because we are going to be having more auctions going ahead and also a quick take with regard to the director for cap on capacity charge that would be levied on various power companies? Could you take us through those details?

Dole: There is no denying that if one does an analysis of bids, which have happened specifically in the power sector, these bids are pretty aggressive. There is no way that a company can actually extract coal at the stated price and make money out of it. So, clearly companies will have to take a hit when they essentially mine the coal.

Now it actually needs to be seen how the proposed cap is implemented while purchasing the incremental power by the state electricity boards (SEB). If one actually analyses the model agreement, which has been floated on ministry’s website, it says that every state electricity regulatory commission should put a cap in consultation with the SEBs and therefore there is no formula which is being stated out there.

So probably even the state regulatory commissions would take into account the hardships that some of these companies will undergo while extracting the coal and while pricing it and subsequently the cap will be decided when such bidding is concluded.

To me, gone are the days when companies could extract coal and sell power at supernormal rate, making a return on equity in excess of 30-50 percent. The private sector would be more than satisfied if they make something like 15-15.5 percent of assured RoE while extracting such coal and selling it to the end level SEBs.

Reema: Let me come to you on coal production because that is touted as one of the biggest achievements of the government because in a span of 10 months, just purely on the back of execution and efficient execution, they have managed to improve the production of Coal India. It already has improved by about 11.5-12 percent. Do you think it is sustainable, this kind of coal production and anything more than they can do?

A: It is fully sustainable and I am very sure production would increase at much better rate in the coming years because the present government is geared to remove all the constraints, bring about new technology and plus the new mines which are being auctioned, if they all get auctioned in the next six months, we will have about 120 million tonne of coal coming from these mines.

So, frankly speaking, I do not see domestic coal production as constraints. Because imagine when all these plants were working about 63-64 percent plant load factor (PLF), they start working at about 82 percent PLF, we need to ensure that power reaches the last mile over there. There is no rationale of producing more coal, more power and then unable to supply and getting the plants on reserve shut down.

I was in Bhopal yesterday, and Secretary of Energy explained to me that he is shutting his own plants on a rotational basis. Now, in peak time, when agricultural demand is very high, domestic demand is very high, to shut down the plant is really not acceptable.

Therefore we need to work for next 18-20 months sincerely with states like UP, Rajasthan, Tamil Nadu in South and to see what can be done in consultation to improve their finances and let the power flow freely to the consumers.