Tata Power Company Ltd has an ambitious target of investing Rs 75,000 crore to scale up its capacity and aims to add 2-2.5 gigawatts (GW) of capacity every year. While the company’s debt remains high, it is not perturbed as its financial ratios look comfortable, Chief Executive Officer and Managing Director Praveer Sinha told Moneycontrol’s Rachita Prasad in an interview. Sinha expects global coal prices to remain elevated for at least two years. But he hopes that Coal India Ltd’s efforts to increase output and additional renewable capacity in the country will ease the power supply-demand mismatch in the country. Edited excerpts:
Q: The first quarter of the fiscal saw India’s peak demand for power at all-time highs and many power plants witnessed coal supply constraints. How was it for Tata Power?
A: All our generation plants performed consistently very well. Our transmission, distribution and renewable businesses did well. There was some stress in EPC (engineering, procurement and construction) projects. Our coal companies have done well, including Mundra. Now going forward, I think there is a good trend as this was our 11th consecutive quarter in which we have shown growth. What it means is that the fundamentals are right; we have a good foundation for future growth.
Our existing transmission and Odisha distribution have stabilised. Our renewable business, where we are doing utility-scale projects, rooftop solar, and solar farms, is growing. There may be some aberration; like in this quarter, the outlier has been the high coal price.
Q: What’s your outlook on coal prices?
A: It is expected to continue at these levels for at least the next one year, and for then the year after, it may be a little lower than this. For the next two years, coal price will remain high, maybe after that, it will come down. Pricing is dependent on availability. There were heavy rains in Indonesia and mines were flooded. The same thing happened in Australia. Due to the Russia-Ukraine war, the availability itself was less because of the Russian supply disruption and then the big producers in these countries could not produce due to rains. Then the gas availability was also reduced. So there was huge pressure on coal. And that's why the supply is less than the demand and the prices are very, very elevated.
Q: There has been some slowdown in the EPC projects in the solar power sector. What's your outlook on that?
A: It will pick up; it will take another few months for the (solar module and cell) prices to stabilise. There are some projects where the BCD (basic custom duty) is a pass-through; for them, it’s not a problem. But where the BCD is not a pass-through, people are deferring the investment or deferring the completion of those projects.
Q: The government has been pushing power generators and states to import coal for blending. This is a deviation from our earlier stance of reducing coal imports. How difficult would it be to suddenly import coal, especially at a time when demand from other countries has also increased due to high gas prices?
A: We have to look at it differently. One is that in India, most of our generation is on domestic coal. So to that extent, we are not impacted by what the international prices are. This year, the demand for power all of a sudden in the months of March-April went up by 25 percent to 30 percent due to heat waves in central and northern India from the 10 percent increase that we normally see. Secondly, even if we discount the heatwave, there was an increase of about 15 percent to 17 percent, which is much higher than what was projected based on which Coal India and others produced coal to supply. There is a gap, whether it is 4 percent or 10 percent, and for that India is importing because India's demand has increased as the industry is doing well. Now that Coal India and others have realised they will enhance their production capacity over a period of time and the import to that extent will come down. It's not only coal production, there are challenges with its transport too.
Another thing that has happened is that of the nearly 60 gigawatt (GW) of renewable energy projects that have been ordered in the last three years, only 10 (GW) has come up. The balance of 50 GW has not come up due to various reasons. Once these projects get implemented, to that extent, there'll be a huge relief.
Q: In view of the power crisis, the government moved swiftly and invoked Section 11, which meant that power units had to run at full capacity and they would be compensated for the higher cost of coal. You have been selling power at full capacity from Tata Power’s imported coal-based arm Coastal Gujarat Power Limited, do you expect the deadline to be extended beyond October?
A: Section 11 was imposed from May 1 and we are supposed to be reimbursed the full pass-through cost. We are expecting that to happen till October and if it gets extended beyond that then it will remain for the period they notify. Many of the plants which were not operating will be able to operate with this.
Q: What is the average price at which you are selling the additional power from CGPL under Section 11?
We have to operate at full capacity. The tariff depends on the cost at which a plant procures coal; it is fixed on a fortnightly basis. CGPL’s tariff is around Rs 6 (per unit), we are the lowest because of better coal management and efficiency; others are going up to Rs 7.
Q: Do you think this will change the way the government has approached the issue of revising tariffs to factor in the rising price of coal. Or is this only a stop-gap arrangement?
A: The growth of the country will continue to be there and it is not going to get reversed. I think they will have to continue this for at least the next two years till such time that the enhancement of coal production in the country happens.
Q: CGPL has been in talks with the Gujarat Urja Vikas Nigam Ltd (GUVNL) for the supplementary power purchase agreement for an increase in power tariff. What is the update on that?
A: That discussion is still going on; parallelly we are under Section 11. The tariff discussion with GUVNL is for long-term supply; that will be done and finalised. Now that Section 11 is there, they will use that as a benchmark for finalising the arrangement on a long-term basis.
Q: Merchant power prices have gone up; what is your outlook? What is Tata Power’s strategy for merchant power sale?
A: Merchant power in India is still very small, only about 7- 8 percent of the total. Most of the power is still sold on a long-term basis. I don’t expect that it will cross 10 percent. The stressed assets in the power sector came about only because of this reason; many people bet on merchant power. The market is not very deep; it is only for certain periods of the day and certain periods in the year that demand for merchant power is high. You cannot have a base load plant operating on a merchant basis.
Q: Tata Power plans to invest Rs 75,000 crore in renewable energy over the next five years. Will this be mostly on solar power projects?
A: A large chunk of it will be solar, and some of it will be wind as a hybrid project. There would also be some storage battery projects. We don’t have an exact breakup of the mix but I can say that the majority of it will be solar, but in cases where the wind is required to supplement generation in the night time as a hybrid solution, the wind will also be very important.
Q: What solutions are you looking at for 24x7 renewable energy supply?
A: We are definitely looking at a 24x7 solution through a combination of wind and solar. We are looking at a combination of solutions including wind energy, solar storage, combination of wind, solar and hydro. So multiple options we are working on depending upon the client's requirements. So what is their profile of energy consumption, based on that we take a call.
Q: For Tata Power’s renewable energy portfolio, you have considered initial public offer and other equity fundraising options in the past. Given the ambition of the company, do you have a requirement for more equity investment after the Blackrock deal?
A: Right now, we don't have any other plan except what we have already done. We were exploring various options, once having decided on this option, we will implement the projects in the next few years. Once we have used all the money and all the resources, we will see how the market is and what the opportunities are. At least for the next two-three years, we are good to go.
Q: What will be the scale of expansion going ahead?
A: We are looking to add about 2-2.5 GW of capacity every year. The total capacity will be 15GW by 2027 (from 4.9GW now).
Q: According to your Q1FY23 presentation, gross debt is Rs 49,693 crore. What is the strategy for debt reduction?
A: There are two ways to reduce debt, one is the divestment, which we are doing. We still have some assets where divestment will happen, like our assets in Georgia or Zambia. We will also receive some money this year from our earlier stake sale in the Arutmin mine, around $120 million.
The second way is to improve your performance, then the cash flow itself will help you to repay the debt. Our performance is improving, and we have a better cash flow. We'll be able to address it (debt) from the profit of the company
Q: By when do you plan to exit the assets in Georgia and Zambia?
A: These are non-core assets. At some stage when we get a good value for the investment that we have made, we will definitely exit them.
Q: In 2020, the company set a target of reducing debt to Rs 25,000 crore. What is the target now?
A: We’ve not set a target for ourselves, because we are also now parallelly growing. When we were talking about bringing it down to Rs 25,000 crore, we didn't have a growth plan. Now we are growing so debt has to be such that we should be able to cater to that. If the business is growing and you are making money, you have enough EBITDA (earnings before interest, tax, depreciation and amortization) then you can cater to even a higher debt amount. The ratios should be right. Our debt-to-equity ratio is 1.5 right now, which is very good as infrastructure companies typically have it at 2 and above.
Q: The unprecedented power outages in Mumbai earlier this year and before that in October 2020 raised questions about the power supply in the city and there were speculations about cyber attack. Separately, the power minister admitted that hackers funded by the Chinese government had made two attempts to bring down Indian electricity distribution centres near Ladakh. What is Tata Power doing to ensure that the Mumbai network is isolated and protected?
A: All the earlier instances of outages took place in the transmission system which impacted us. On the physical side, we have implemented a system to isolate if a fault like that comes up. The second thing we have done is the IT part of it to ensure cybersecurity. We continuously monitor that and come up with solutions to improve cybersecurity to prevent likely attacks. We have done a lot of work on our own on that front and we are also working with global consultants who have expertise in this.
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