Emissions billow from smokestacks at the NTPC Ltd. Badarpur coal-fired power plant as the sun sets in Badarpur, Delhi. (Photographer: Kuni Takahashi/Bloomberg)

No ‘Off-The-Shelf’ Solutions To The Sector’s Problems, Says Power Secretary

Issues related to the power sector should be dealt with separately as it functions amid various constraints. That’s according to Power Secretary Ajay Kumar Bhalla, who called for the resolution of what he termed “sectoral issues”.

“Though power generation has been delicensed, the sale of power and coal supply are still under a regulatory regime to ensure energy security and ensuring supply of electricity at reasonable prices,” said Bhalla.

On the hurdles faced by stressed power plants, Bhalla said: “Some of the coal shortages have happened due to cancellation of coal blocks.”

We’re holding a meeting of high level committee and let’s see if some more time can be obtained for assets which are already under bidding (under the insolvency process).
Ajay Kumar Bhalla, Power Secretary

Watch the interview here

Here’s the edited transcript of the interview:

What are your comments on the entire issue as far as the Allahabad High Court order is concern? How do you see it from the power sector side?

The lenders have been trying to dissolve some of these assets, specially the commissioned ones and they had after doing the due rating of this projects have gone for bidding and many of the projects where under bidding. Others were also in similar stage but all lenders where to come to agreement, and I think there were some delays. In that context, more time could be given to these assets which are commissioned or in bidding or which can be have solution as visible. That’s why the association of power producers have gone to court for interim stay on 180 days period. The committee which listen to all the stakeholders under Department of Financial Services also recommended that 180 days more can be considered. But Allahabad didn’t consider it giving time. The resolution process is already on. We generally feel that if it goes to NCLT then the whole resolution process will start again and get delayed. So, we still feel that we can resolve some of these assets.

What would be the focus area for the committee? Will it be resolving the issues relating to fuel supplies?

Based on the issues raised by the Indian Power Producers Association, the terms of reference of the committee has been devised to address three types of issues. One is the fuel issues, shortage of fuel issues in some plants and no linkages available. Other is we can link it to the lack of power purchases as linkage is available under Shakti policy provided you have Power Purchase agreement. So, we will see how best we can find solution to it in short time. Others are payment for discoms. Already the PP has certain mechanism, but it seems it is not working. So, can we look at some mechanism which can ensure payment guarantees. There were some regulatory issues being pointed out by the IPPs of delay in pass through of change in law. That will be examined by the committee and see what best systems we can resolve. Basically, to look at the short-term market, as this IPPs can allow to sell power using a transparent mechanism and linkage can be made available.

Do you expect some intervention from the Finance Ministry or Government in this regard because we have RBI under various sections which can receive directive from central government?

As per the court order too, the Power Ministry has been asked to invite the representative of RBI for the meeting which we have done. Ministry of Finance in any case is part of the committee. So, we expect that this issue will also be deliberated for our resolution. I heard saying by Ministry of Finance that this issue will also be placed before the committee for discussion.

Do you think Power sector is in a special situation, probably it is national asset and we cannot substitute it via import or some other mechanism and need some preferential allotment or treatment when it comes to fuel linkages, resolution with banks?

We would like others to appreciate that it is more of a regulated sector. Though generation has been totally delicensed but the sale of power, the regulators controlling it and sale of coal are in regulatory regime as per as power sector is concern, basically to ensure energy security for the country and ensuring power supply at the reasonable prices. Power sector functions within these constraints. So, we have to look at issues related to power sector separately. On one hand, it is okay. The lenders are being right and the RBI too. This are sectoral issues which we need to address. It will take some time to address these issues. Some of the coal shortages have come due to cancellation of coal blocks. It may take some more time to resolve it. The policy has been put in place to ensure that linkage is available but such plant which will get linkage under Shakti policy are still looking for PPs from the Discoms. The solution is not available just of the shelf. There are different aspects of the whole sector which we need to address separately. Some can be address in short term and some in medium term. So, we will be debating all these points tomorrow in the committee.

What you make of the new Parivartan scheme which is been proposed by Rural Electrification Corporation? Do you think it will resolve some of the issues that we earlier pointed out for the power sector?

In asset management company, there is already a concept there. Parivartan REC has suggested certain changes which is being discussed by the lenders and RBI because it needs certain concessions under RBI scheme of asset management companies. That point is being discussed by REC with RBI and lenders to reach a consensus. Some of these assets can be put as in a warehousing company. That will give us some breathing time to address some sectoral issues resolved the fuel issues and PPA issues and till the time the assets can be put on hold. The matter has taken into understand by REC CMD with the lenders and RBI.

Don’t you think warehousing the power assets is not the same thing as delaying the problems of today? Will that be overlap of problems and some issues in terms of the warehousing mechanisms?

For warehousing mechanism, there are some issues which presently is the upfront value as what value it will be transferred and how the lenders will give it a treatment in their books. This issue is handled by REC and lenders. Our point would be that in the immediate time frame, sufficient power purchase agreement may not be available. For short term requirement of power in market, already the commissioned assets are there. Some of the assets which are near readiness which can be turned around with little more investment perhaps can go to asset management company where it can be held for some time and then it can be considered. So, all assets could not go into this and all assets could not immediately outside the in the present regime. There have to be different treatments for the different assets depending upon the readiness, availability of coals, their PPs and other things. The stress is due to different reasons.

How would your Ministry ensure and how would this committee look at the angle of funding?How would you ensure the encouragement, or the real benefits should come to the investors who will now come with their risk capital?

We have certain projections for requirement of power in this country looking at the growth pattern. The kind of infrastructure investments are happening in power sector at the lowest level under the Din Dayal Upadhyay Gram Jyoti Yojana and Saubhagyavati Yojana, lot of demand will come up. Wherever we have improved infrastructure and given connections the demand in those places have increased suddenly. The demand was there but lack of infrastructure to carry the power and all was keeping the demand hidden. More investment in reaching the electricity to the remote corners of the country is going to bring lot of demand. We definitely see by 2022, a large percentage of this power can be accommodated, purchased and there could be PPs. Only we have to look at the structure of the way power has been procured. Long-term PP has lead to fixed cost burden on the states. States are little shy in entering into further long-term PP.