India’s largest private power producer Tata Power Ltd has been facing the heat of regulatory changes in coal exporting nations. At the domestic front too, a proposal to impose import duty on power equipment is set to make business difficult. However, Managing Director Anil Sardana is confident that the company would wade through difficult times, he tells Sudheer Pal Singh in an interview. Edited excerpts..
What would be the impact of the government's latest decision to impose 21% import duty on power equipment on Tata Power? Which are the projects currently being implemented by Tata Power where imported equipment is being used? How would the cost of production go up as a result of costly imported equipment?
The power sector is already plagued by varied issues starting from availability of fuel to poor health of the distribution sector. It is counter-productive to increase project costs through duty increases since the burden will eventually be borne by the consumer. Due to over exposure of Indian financial institutions, the project developers today are dependent on external commercial borrowings (ECBs). These will be severely impacted if imports are curbed. ECBs also enable the industry to structure costs in a way that the final tariff of electricity is reduced for the benefit of customers. The support of buying countries' Exim banks, and so on, would not be forthcoming. The easy import of equipment for power projects has been a large contributor to the capacity addition in the 11th Plan, with almost 50% of additional coal-based capacities depending on imported equipment. Added custom duties will curb the import of superior technology products that are already highly priced, thus, hindering the advancement of the sector. Instead of protecting sales of domestic power equipment manufacturers by increasing custom duties, we strongly urge the government to resolve the sector issues since these would result in capacity addition and directly increase sales for all manufacturers. There is a strong need for removal of barriers to entry at all stages, and for an optimal pricing and tax strategy to be in place, so that the resource allocation takes place based on market forces operating under a credible regulatory regime.
Tata Power had approached Central Electricity regulatory Commission (CERC) recently seeking a hike in tariff for the Mundra UMPP. The commission asked you to come back with additional inputs. What is the current status? How has the Indonesian regulation on coal exports impacted the projects financial viability?
This is a sub-judice matter and the company would not comment.
What is the current installed capacity of the company? Could you elaborate on the expansion plans?
Tata Power is India’s largest integrated power utility with business presence across generation, transmission, distribution, trading and fuel & logistics. The Company’s gross generation capacity has touched 6099 MW. The company is also one of the largest renewable energy players in the country with significant capacity in wind and solar. Also Tata Power is evaluating various opportunities to grow globally both in conventional as well non-conventional energy space. The Company has prioritized seven countries in three geographies for international play. The Company aims to generate 26,000 Mw and secure 50 mtpa of fuel resources by 2020. Towards this end, it has various projects in the pipeline. In distribution also, the Company is making steady progress in Mumbai and has crossed the 3.0 lakh consumer mark and is now a significant player. Company’s distribution presence in New Delhi, through its subsidiary Tata Power Delhi Distribution Ltd is doing very well.
So what is the progress on new projects?
The 4,000 MW Mundra Ultra Mega Project is progressing well and construction activities are in full swing. The first unit has been commissioned in March 2012 and is the first 800 MW sized super critical unit in the country.The second unit was successfully synchronized in July 2012. The first Unit of 525 MW of Maithon Mega Power Project in Dhanbad, Jharkhand was commissioned in September 2011. The second unit of 525 MW was commissioned in July 2012. At the 1,600 Mw Coastal Maharashtra Project, all statutory clearances required to start the project implementation are in place. Land acquisition is in progress. The Company also signed an Agreement with Maharashtra State Government for the R&R package for farmers in the Dehrand and Shahpur villages. Economic options for coal sourcing and logistics are under evaluation. For the 660 MW project at Marthapur in Orissa, all major clearances have been obtained. Land acquisition is currently in progress. The Environment Clearance has been granted by the environment minist
ry, subject to clearance from National Board of Wild Life for which the process is on. Proposal for using clean technology is also under discussion for this project. Also, the process of land acquisition for the 1,980 Mw Tiruldih Power Project in Jharkhand is in progress. In principle clearance has been received from Railways for transportation of coal from Tubed Coal Block.
What, in your view, are the top issues currently being faced by the power sector?
Poor financial outlook of Discoms, where the losses have been increasing to levels far higher than previous years, is a matter of great concern as the buyer of merchandise has to be solvent and efficient, failing which the fiscal health of all associates in the value chain will get impacted and it would lead into vicious & unviable circle of uncertainty. Power distribution still remains a segment that needs significant reform-intervention and a combination of tariff increases, distribution reforms and open access is required going forward. The acute shortage of domestic coal in the country has also become an issue for the sector. It has also led to apprehensions that the ambitious capacity addition targets of 90 to 100 GW in the upcoming twelfth plan period (2012-17) may not be met and may also cause avoidable stress on assets already built or committed the private sector. The country is likely to face nearly 20 to 30% shortage in domestic supply of coal. This is in addition to the huge gap in supply
of domestic gas. Imported fuels have become a challenge today and if not dealt properly would be a lost opportunity for India. The progressive governments elsewhere are not just aggressively scouting but are tangibly tying up resources known to be available globally. India needs to also get its act right. Further, the rise in imported coal fuel prices due to regulatory issues in global markets including Indonesia would also need to be dealt lest developers would not create downstream investments here in India to use imported coal. Projects announced by various players are moving at a snail pace. The rate of growth of the transmission network during the past decade has been at about 6-7%. The inter-regional transmission capacity has increased from 5 Giga Watt (GW) to about 22 GW by March 2011. However this falls short of the 14% annual growth in transmission capacity targeted in 11th plan. Further policy directions do not indicate any significant development with respect to addressing peaking shortages. Also, despite expectation of policy changes to allow private sector in Nuclear, there was no real development on the subject.
What are your views on the weakening Indonesian coal prices?
Though there has been a marginal decrease in Indonesian coal pricing, it is not significant enough as the price increase in the past few years has been unprecedented and in the tune of 130%.
In addition, Indian importers have not benefitted significantly from the fall in prices due to the significant depreciation in the Rupee. Between March-May 2012, international coal prices fell by 10.5%, but the fall in Rupee meant Indian imports were 1% more expensive in Rupee terms over the same period
