‘Unless Reforms Happen, 100,000 mw Will Remain A Distant Dream’

Posted online: Saturday, May 04, 2002 at 0000 hrs
J P Chalasani, chief executive, BSES Infrastructure Finance Ltd, is working on several projects, including raising resources for BSES Power Plants in Andhra Pradesh and Kerala and charting the course of action in case BSES gets the contract for distribution of power by the Delhi Vidyut Board (DVB). Having started as a trainee in 1979 with National Thermal Power Corporation (NTPC), Mr Chalasani, popularly referred to as JP in the power circle, has worked on site and with various departments in NTPC, which gave him an indepth understanding of the complex issues surrounding the sector. He joined Reliance Power in 1995 after having worked for three years as special technical assistant to the chairman, NTPC, and then BSES Infrastructure Finance Ltd in 2001.

J P Chalasani
The light-eyed, young (40 something) CEO gets absolutely passionate while talking about the huge potential in the sector as he, in an exclusive interview with Sangeeta Singh of The Financial Express, discusses the benefits that would accrue out of power sector reforms in India. Excerpts:

What, according to you, are the typical problems in privatisation of distribution through state electricity boards (SEBs)?

Unfortunately, free distribution of power becomes a part of election manifestoes of most political parties in India. While no politician talks about free telephone connections, everybody assures free electricity. This is accompanied by large-scale theft that plagues the industry. For any private player to enter the sector, the commercial viability and creditworthiness of users needs to be established. Also, it is absolutely necessary that a clear-cut tariff policy is announced and implemented. Until these things happen, private parties will refrain from participating in the privatisation process.

How do you think the DVB privatisation model is shaped? Why is it not attracting more private players?

I must say that the model is excellent and the Delhi government has done a very good job. It’s the best possible formula. Besides, all the pitfalls that were there in the Orissa State Electricity Board have been taken care of. However, private parties are restraining because the risk in this project is very high and the result of that is that today only two players (Tata Power and BSES) have bid for the sector even though most players think that Delhi is one of the most attractive proposals that a private player can bag. It can prove to be an absolute gold mine because of its urban and planned complexion.

I feel that in order to rope in the private sector to bid for DVB, the government should support the private players for the transition period of 5-6 years on a sustained basis. This is required because of the mounting losses that the board has faced over years. The margins would be very low.

What actually does the government expect from private players in case of privatisation of distribution?

Today, the government’s expectations from the private sector are very high as far as loss reduction is concerned. But the government should realise that private players don’t possess a magic stick. The risk of losses have to be shared by the government.

For any kind of privatisation of electricity boards, the government has to support the private players initially, and then gradually withdraw when the business becomes self-sustaining. Unless reasonable returns emanate from a rational tariff regime, it will be difficult for any private player to justify its entry into this sector.

What are the other initiatives that the government should take till such time the private players contribute?

Well, the government also realises that more and more private sector participation is required in this sector. Besides, it also knows that larger players, like Tata and BSES, have limited appetite and cannot bid for all projects. Also, a larger number of companies need to participate. Till this is done, the government can bring about changes through corporatisation and by forming expert groups. This has been done in Andhra Pradesh, where instead of privatisation, corporatisation of electricity boards has been done. In this interim period, distribution reforms should be carried out, and private sector will automatically be attracted in 4-5 years. Once they establish themselves, foreign players for whom power has become a dirty word today, will make their entry.

How will reforms in distribution percolate to the other sectors?

Well, once distribution reforms are in place, with both the government and private players co-operating, companies would get the incentive to enhance generation. This will further percolate to transmission. The sector would become vibrant and finance for augmenting generation will flow in. As of now, there are no securities and counter-guarantees. Unless all this happens, the country’s dream of one lakh mw of power will remain a dream. We all know, more power translates into more prosperity which will come from all sectors. Besides, if losses in the power sector are wiped out, the government can focus more on social sectors, like health and education.

When you talk about new generating capacities, where do you think it will come from —hydro or thermal?

From both. However, the country also needs to correct the ratio in favour of hydro electricity. The ideal thermal-hydro ratio should be 60:40. The problem in hydro basically is geological and social. However, for private players to concentrate on hydro, the peak load tariff has to be raised for the projects to be viable.

What was the basic reason behind BSES Infrastructure Finance Ltd’s creation?

This company was mainly formed to raise finance for BSES projects. As of now, we have raised Rs 225 crore, most of which are for its 165 mw and 220 mw projects in Kerala and Andhra Pradesh, respectively. Besides, this company has been developing strategic business plans for BSES. Taking a 10-year horizon on the distribution, transmission and generation scenarios, we chalk out the business plans for the parent company.

BSES Infrastructure also works on the physical targets on resources with both financial and manpower organisation. For instance, in the case of DVB it developed the comprehensive plan right from forming the draft for participation, negotiating and bidding. BSES Infrastructure also plays an advisory role when it comes to acquiring a company or starting a new project. We will continue to work with the new company till it achieves financial closure.

What was the need for forming this subsidiary?

The parent company felt the need for streamlining certain activities pertaining to new projects which could, at the same time, do ground work for the new projects as well as give suggestions on how to go about the whole process in a streamlined manner. Since the power sector operates under a regulatory environment, it was felt that the subsidiary could play an important role in various areas.