Demand for power projects could revive in year 2017: Ravi Arya, Hindustan Power

By: | Published: July 8, 2015 12:10 AM

Hindustan Power Projects Pvt Ltd (HPPPL), formerly Moser Baer Projects, forayed into coal-based thermal power projects over three years ago, on the back of a memorandum of understanding (MoU) with the Madhya Pradesh government to develop 2,520 MW capacity.

Hindustan Power Projects Pvt Ltd (HPPPL), formerly Moser Baer Projects, forayed into coal-based thermal power projects over three years ago, on the back of a memorandum of understanding (MoU) with the Madhya Pradesh government to develop 2,520 MW capacity. It commissioned the first 1,200 MW plant in Annupur, MP, recently. HPPPL’s Ravi Arya, president-thermal, had an interaction with FE’s Sumit Jha recently, in which he discussed the power sector scenario in India, with all its problems and promise. Excerpts:

Could you find buyers for the power you have started producing?

Our project was based on an MoU with the host state, which requires us to sell 35% of all commissioned capacity to it. So far, that translated into 420 MW. We sell nearly 60 MW of this at a constant cost comprising only energy charge as per the agreement, while the rest of the capacity has been contracted at tariff determined by the state regulator. We also managed to tie up 361 MW with the Uttar Pradesh government in 2012 but have not been able to start supply due to congestion in the west-north transmission corridor. In June, we have qualified to be a power supplier to Andhra Pradesh for a contracted capacity of 374 MW, which leaves us with only 45 MW to spare.

infraCan you explain the problems you face in supplying power to UP?

The 400KV transmission line between Gwalior (western region) and Jaipur (northern region) that was supposed to have been ready by March 2014 got stuck because of lack of right of way (ROW) as the line passes through areas with wildlife. The issue was taken to the National Green Tribunal. The delay seems to be over and we hope to have the corridor available to us by the end of August. Although the power purchase agreement (PPA) was for supplying power from October 2016, we could start earlier as the UP government agrees to it. The non-availability of line has disrupted supply of power from the surplus western region to starved northern region.

Lack of PPAs has been a constant complaint from the power developers, but the discoms blame high tariff for not buying power. What is the nature of your PPA with UP?

Originally, UP had invited bids for 6,000 MW in 2012 but could only close the deal for 2,175 MW in the next two years. Our pact is at a levelised tariff (over 25 years) of R5.74/unit. Even though the tariff seems high, at the bus bar the state will only pay R4/unit in the first year. The tariff for the subsequent years will be determined by the escalation formula that takes coal prices and wholesale price inflation into account. So the levellised tariff is not the actual tariff but just a mathematical model developed for comparison among bidders. For instance, coal escalation has been a constant in the last two years and hence the tariff for next two years would not be substantially different from the first year. Its been a complicated metric and a cause for confusion even among the veterans in the sector.

When would the work start on your next two plants of 660 MW each?

The preliminary work has been completed. But for a project that has a debt-equity mix of 75:25, we would need the lenders’ approval. The lenders, a consortium of banks, will fund us only if we have secured fuel supply for the next phase. We have been holding back on the recently held coal block auction as we didn’t need mines that were near production. We would now bid for coal mines in the next phase, as those mines would take nearly three years to start production, perfectly syncing with the completion of the new plants.

It seems securing coal supply is easier than finding buyers for power.

Over the last year some of the long standing issues in coal supply seems to be clearing up. It needs a lot more work still. As far as PPAs go, the industry has suffered a drought in the last two years but there are signs of it changing. The recently announced PPAs for Andhra Pradesh was much needed and UP may also announce fresh bidding for the remaining capacity it originally wanted to buy. This would mean that by the end of this year there could be 3,800 MW of contracts to buy power up for grabs.

Does that mean demand is back in the sector?

Power is perhaps the most cyclical element of the infrastructure sector and although these PPAs bring much respite, the real demand has still not been created. In my view, action is likely to return by 2017. The reason for this is that no investment is being made in capacity addition, as the industry focuses on the revival of stuck or non-viable projects. However, as the economy grows and demand inches up, these projects, which are under construction or just being commissioned, would be better placed to take advantage of it.

Do you see the trend of uncertainty reversing anytime soon?

While demand is sure to return sooner than later, the uncertainty of the business may not only linger but could get even worse. The coal transportation problem is likely to get worse with time. We do not have enough railway lines to supply coal to plant locations and although work has started on those lines, it is unlikely to be fast enough. Land acquisition problems could hamper infrastructure building, leading to a spike in the cost of coal supply over long distances. Our plants are coal pithead plants that places us only 260 km away from the coal source. The flip side of being close to coal source is that we are some distance away from the load centres and congestion in transmission has been bothering us. But power sector economics says reliance on transmission is far less risky than relying on coal supply over long distances. Transmission lines once built would last through the plant lifetime, but coal supply with constrained transportation could be more complex and costly.

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