With electricity demand in India lagging behind the capacity addition and tariffs falling, producers are facing offtake issues that they have not already tied up through long-term power purchase agreements, according to an energy major.
"Right now, the power sector faces a challenging macro situation. In that, while there has been a lot of capacity addition in the last 4-5 years, demand has not grown enough to utilise this," JSW Energy MD and Chief Executive Prashant Jain told BTVi in an interview.
"Power demand has not grown because industrial growth is not picking up. Secondly, the government has launched an energy efficiency drive, which has also created a lot of mismatch between demand and supply," he said.
"On the merchant tariff side, prices have crashed from Rs 4 to around Rs 2.50 per unit," he added.
Jain explained that JSW Energy had tied up for the offtake of about 65 per cent of its power generation through long-term power purchase agreements (PPAs) and was facing challenges about disposal of its remaining "untied capacity".
"We will tie up long-term PPAs in the hydro sector... so that from 65 per cent our tied up power goes up to 75 per cent. But for the balance 25 per cent, we don't have a visibility," he said.
In this connection, Jain said the central government's Ujwal Discom Assurance Yojana (Uday) debt restructuring scheme for states' electricity distribution companies (discoms) had financially benefited the discoms.
"Besides, discoms can now secure power from exchanges on RTC (round the clock) basis at rates of between Rs 2.60 and Rs 2.90, which is also a challenge for us," he said.
The JSW Energy Chief Executive was also optimistic about long term PPAs picking up "in due course."
"Economic growth and the IIP (Index of Industrial Production) is picking up. Secondly, the government focus on low income housing... as also its focus on electrical mobility, all of this will hugely boost the demand for power in the coming years."
Regarding the company's debt and consolidation plans, Jain said that while it has a debt of Rs 13,500 crore as on March 31, 2017, JSW Energy's net worth is currently around Rs 10,700 crore.
"With a net debt to equity ratio of 1:29, we have a good balance sheet," he said.
The company has about 30,000 MW of power in "stranded capacity", meaning these are stressed assets, while power tariffs are normally ranging around Rs 2.50 and Rs 3 per unit, Jain pointed out.
"So, we have to see what kind of haircuts lenders are willing to take and there will be a revival of a lot of stranded capacity at that time," he said.
Both commercial banks and the Reserve Bank of India have been emphasising on addressing the bad loans issue because of their impact on profitability.
'Haircut' is one of the options to address the problem of non-performing assets (NPAs). In the context of loan recoveries, it is the difference between the actual dues from a borrower and the amount he settles with the bank.
--IANS
bc/vt
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