Record caFe: We expect a 3-6 month reduction in project delays

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December 10, 2015 12:19 AM

The state-run power transmission behemoth Power Grid Corporation of India Ltd (PGCIL) expects that its project execution delays would be cut down...

if states adhere to the benchmarks prescribed in the scheme along with help from the Integrated Power Development Scheme and Deendayal Upadhyaya Gram Jyoti Yojana, there would be a turnaround in the fate of discoms, says InduIf states adhere to the benchmarks prescribed in the scheme along with help from the Integrated Power Development Scheme and Deendayal Upadhyaya Gram Jyoti Yojana, there would be a turnaround in the fate of discoms, says Indu Shekhar Jha.

The state-run power transmission behemoth Power Grid Corporation of India Ltd (PGCIL) expects that its project execution delays would be cut down by up to six months due to new initiatives taken by the government with regards to forest clearances and Right of Way. Indu Shekhar Jha, CMD of PGCIL, who took charge of the firm last month, spoke to FE’s Sumit Jha on wide-ranging issues related to the power sector. Excerpts:

How does PGCIL’s orderbook look like?

We have many projects under various stages of implementation, with an aggregate cost of nearly Rs 90,000 crore. Then there are projects worth Rs 30,000 crore that we haven’t tendered out yet. We intend to complete work for nearly Rs 1.2 lakh crore worth of 3-4 years. Some of these will spill over till 2017 and beyond.

What’s the nature of these projects?

PGCIL is completing some of the unfinished parts of 11 high-capacity corridors across the country, along with two phases of the green corridor. We are also executing transmission projects for some Northeastern states as their consultants. We have a 50:50 joint venture with the government of Bihar for executing some of their intra-state projects. We had a target of projects worth R1.1 lakh crore for 2012-17 and some of these would be completed post-2017.

PGCIL has suffered delays in executing projects and has often been criticised for it. What is the status of project implementation this year? Has there been any reduction in the number of delays?

Some of the steps taken by the government in relation to forest clearances and Right of Way (RoW) are helping bring down the delay period. We expect reduction of 3-6 months in average project delay over time. Since the changes in compensation norms for RoW have recently been implemented, it’s currently hard to compare with last year but a improvement would be visible soon.

Could you elaborate on the changes in forest clearances that have helped you?

Forest clearance was one of the most critical issues for us to be able to stick to project schedules. Earlier, stage-1 and stage-2 clearances had to be obtained before any work on project could be started. This has now changed and a company like PGCIL, which implements “linear projects”, can now start work after stage-1 clearance. The project can go ahead even as the ministry of environment and forests (MoEF) considers application for stage-2 of forest clearance. Both these stages could take two years or more. However, the project can now start at least a year earlier due to deemed work permit that comes with stage-1 clearance. Secondly, regional forest offices of the MoEF have been empowered to deal with projects of larger sizes. Earlier, these offices had the mandate to approve projects that required land up to 5 hectares. Any thing above that would go to the ministry for consideration. But now regional offices can take care of a project requirement of up to 20 hectares, which has reduced the time spent for back and forth correspondence between the regional offices and the ministry. Most of our projects require 20 hectares and less land. The forest clearance has ceased to be an issue for the company now.

What are the changes in RoW compensation norms?

There have been instances of non-availability of RoW for even one transmission tower, leading to inordinate delays in the entire project. The issue was considered by a committee constituted by the power ministry. It recommended that RoW compensation should include 85% of land value for the land occupied by the tower. Additionally, 15% of land value should be paid to the landowner and farmers for the area occupied by overhead lines. Importantly, the new compensation formula includes crop damage, which was the only component of RoW compensation till recently.

We implemented these recommendations only about a month ago but it seems to be making things easier for us. The farmer now gets a bigger compensation, even though his land is not been bought over. We expect that odd problems in RoW would persist but the new policy would make things much smoother.

Will the project cost increase with higher compensation for RoW?

The project cost is likely to rise by 10-12% due to increase in compensation. However, we firmly believe that farmers should be adequately compensated for decline in land value. As a business strategy, PGCIL would prefer a higher compensation outgo and increased project cost than delays that run into years. Execution delays mean that our revenue realisation begins late. It also eats into our returns, besides burdening consumers as cost is passed through in regulated projects. Suppose a project is scheduled to be completed in four years but takes five to commission, then the one-year delay translates into a 0.5% decrease in our internal rate of return. Hypothetically, even if cost doesn’t increase for a delayed project, our revenue gets delayed as we start reaping the rewards only after the project is commissioned, while we continue to pay interest cost for longer duration.

Would delays be completely eliminated in project execution?

Project execution delays are a function of several reasons including forest clearances and RoW. While we believe that these two major issues have been dealt with, there would still be stray issues having an impact on timely execution of delays. Having said that, we have only about 7-8 projects that are delayed purely due to forest clearances and RoW but a larger number of transmission project delays are intentional. Intentional delays occur when the generation utility fails to stick to schedule. In such cases, we intentionally halt the progress of a project so as to synchronise the commissioning of generation and transmission facilities. Those delays will continue to persist as these are beyond our control.

How has PGCIL responded to competition in the sector, with more projects being bid out than being awarded on nomination basis?

We have said this on various occasions that we prefer projects under the tariff-based competitive bidding (TBCB) route than on nomination basis. We can factor in the risks in our bid and still bid competitively. However, for projects under nomination basis, every instance of cost escalation has to be approved by the Central Electricity Regulatory Commission. Some costs are allowed, some aren’t. This breeds uncertainty into the project and hence we favour TBCB.

Competition has often pointed out PGCIL’s aggression in bidding much lower tariff than others…

We do bid competitively because of the inherent advantages, but it’s not borne out from numbers that we bid too low. We already have our plates full with over Rs 1 lakh crore of projects being at various stages of implementation. Our strategy is to carefully choose projects that the company wants to execute. Plus, every new project requires infusion of equity and we are currently comfortable with a capex of Rs 20,000-25,000 crore each fiscal. There is enough opportunity for all the players in the power transmission business.

Transmission congestion has affected the Southern region in the past due to inadequate capacity. When would the capacity become comfortable for flow of power as per demand down South?

As on date, there is a capacity of 5,000 MW that can be supplied to Southern regions from other regions. By 2018-19, transmission capacity would be able to handle a flow of 18,000 MW from other regions.

Does the discom revival scheme impact PGCIL in any way? What’s your take on the Ujwal DISCOM Assurance Yojana (UDAY)?

We have never faced any payment delays except in minor cases, but the discoms’ financial condition is a matter of concern. We would only be more comfortable if our customers, i.e. the states, are in a better position financially. In my view, if states adhere to the benchmarks prescribed in the scheme along with help from the Integrated Power Development Scheme and Deendayal Upadhyaya Gram Jyoti Yojana, there would be a turnaround in the fate of discoms.

What are your views on the ministry’s move to separate the Central Transmission Utility (CTU) status from PGCIL?

The deliberations are going on, but PGCIL believes that it would be a blessing in disguise as the status of CTU hinders us in expanding to different businesses. Without the CTU status, we could venture into distribution and power trading field and leverage our expertise.

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