The Power Minister and Power Honchos In Virtual Open House. Report

At a virtual meet organized by the Confederation of Indian Industry (CII) today, Shri R.K. Singh, Minister for Power, New and Renewable Energy joined leaders from the power sector for a frank and open discussion on the key issues facing the sector. Broadcast live on Youtube, the discussion made for a great example of engagement between the government and industry. The meet was hosted by Chandrajit Banerjee, Director General, CII.

New MNRE Secretary Indu Chaturvedi also joined in the virtual meet, his first big interaction with the sector leaders.

In his opening remarks, Mr R.K. Singh explained the extent of the existing 90,000 crore support that has been announced for discoms. Besides the funding support, he highlighted that Central PSU generators are waiving off fixed charges against power not drawn  on discoms. Industry too would benefit by getting the option to pay these charges in three equal instalments without any interest, he added .

Finally, these CPSU generators  will also give a discount of 20-25 % in power supplied to the discoms, that should be reflected in the bills to  consumers soon, he added.

On the proposed new Tariff policy, he said that the policy was sent to the Union cabinet, which referred it to an informal group of minsters which has cleared it. Thus, the move towards lower power cost for industry in India was much closer today.

Outlining his vision for the sector, Mr Singh stressed on a viable dispensation, 24×7 power supply, and rational power prices for all consumers. He highlighted the provision to reduce cross subsidy provision to 20 percent, in a maximum of four equal installments to give time to discoms to adapt.

Kicking off the first of many suggestions and queries for the minister was Praveer Sinha, CEO and MD of Tata power. Mr Sinha stressed on the dire need for reforms in power distribution. His question was about how the ministry of power planned to support or nudge states into making reforms,  with  a suggestion to start with  BJP ruled states, and Union Territories, to move towards a  model regime that others could learn from.

Shri R.K. Singh concurred with Mr Sinha on the need for distribution reforms. “I believe that at the bottom of this  difficult discom situation  is the fact that where state governments take decisions , the economic impact is borne by firms whose accounts are separate from the states. So there is a disconnect , leading to  sub optimal decisions.  As far as union territories are concerned, we will put in place a distribution system based on open, transparent, competitive commercial principles . We will be bidding them out  soon.”

The minister stressed that despite expected resistance from some states, he expected all discoms to follow corporate governance norms. “They must  be run at arms length, must be professionally run”

He also gave his own take on the reasons behind discom losses, which the Ministry of Power has tried to tackle in the proposed amendments to the Electricity Act.

“Firstly, Tariffs  donot reflect costs . This is because they either don’t file for revision, or they don’t raise tariffs under political pressure. Regulators donot operate at  arms lengh . We are combining selection committees for all SERC’s  into a one  that will select all SERC benches. The state and central government will have equal representation. Headed by an SC judge, these regulators will be more focused on implementing the law, which has not been happening”

“A second change coming is fixing inefficiencies in collection by shifting to prepaid billings. Be it smart metering or otherwise prepaid billing will reduce carrying costs. It will be pro poor as people can add whatever amount they can  to keep power. Meter upgrades will be done in opex mode with the centre providing a 15% grant .”

Elaborating on how discoms are being pushed to reform, the minister reminded everyone how power purchases are no longer acceptable without prepayment or against Letters of Credt. Both Power Finance Corporation and Rural Electricification Corporation, the only two large financial institutions willing to fund state discoms today, have changed prudential norms, where they will no longer fund loss making discoms  without  a reforms trajectory. With a right to recall loans if those conditions are not met.   The minister highlighted that almost 54k crores of discom dues were owed by state entities . These will now have to be cleared in three instalments.

Tulsi Tanti, Chairman at Wind Energy Developer and Manufacturer Suzlon Energy took his opportunity to  stress that the present time was a great opportunity to make India a manufacturing hub in wind and solar, besides services. He urged for a clear 4-5 year market visibility, incentives on exports from India , to get more manufacturing to make the country its home.

Mr Tanti pitched for including Wind Energy in the 12GW CPSU manufacturing scheme for solar , a suggestion that was met with immediate resistance from the Solar sector CEO’s  present. They urged the minister to consider expanding the pie, rather than add wind to the same volume. Something the minister concurred with.

Mr Tanti  said that open access ISTS waiver extension , besides settling the issue of cross subsidies, would really boost the market for their industry sectors to consider RE energy for captive consumption.

The Ministers response was the promise of making open access simpler, with  application approvals  promised in 30 days. He indicated a customs duty barrier starting as early as next year so that domestic manufacturing is incentivized, also, incentives for exports in both solar and wind. To speed up execution under the 12 GW CPSU linked manufacturing scheme, there is a plan to divide the target between a few large PSU’s based on VGF,(Viability Gap Funding)  currently capped at Rs 70 lacs per MW.

The minister had high hopes from the KUSUM scheme where the government is supporting the installation of 2.75 lac solar water pumps to start with.  Eventually, he foresaw separate Agricultural  power feeder networks   supported by the power surplus from these pumps, besides other sources.  “ The entire system can be paid for by 4-5 years of the subsidies of state governments for agricultural  power. After 5 years farmer gets power free and state does not have to pay. Discom is freed of the burden of subsidies permanently. “

Sumant Sinha, Chairman and Managing Director , ReNew Power , had more pressing issues on his mind. His first suggestion was for extending the extra time  for project execution from the present lockdown period plus one month, to six months, as the Finance Minister  had announced for all PPP projects recently.

The same treatment was requested for Long Term Open Access agreements . The minister promised to look at both suggestions positively.

Mr Sinha expressed his apprehensions on power curtailments for Re generators  despite the MNRE notifications on must run status and deemed generation for curtailment, due to the drop in demand. He requested a timeline for the passage of the Electricity Amendments bill, which tackles the issue legally. The ministers response was – “as early as the next session of parliament”.

Rajiv Ranjan Mishra, Managing Director, CLP India thanked the minister for his proactive approach to tackling the sector’s challenges at a very delicate phase, and hoped for a fast movement of the stimulus offered to discoms.

Highlighting the issues of the transmission sector was Mr Anil Sardana, Managing Director of Adani Transmission. . He highlighted an anomaly, in that  while transmission concessions are for 35 years, the license period is 25 years. This frequently led to financing issues when the license period was on the verge of running out. Mr Sardana pitched for perpetual licenses, with a provision to cancel them for any number of critical reasons.

He also pointed to issues with tenders today, where state agencies insert hard codes dates into project timelines, reducing effective execution  time  as key documentation is closed.  Like Mr Tanti and more after him, he also pitched for making power sector part of the GST regime.

Tata Power President Ashish Khanna highlighted the positive move to allow bundling of  thermal with  Reneable energy. This could help remove the antagonism between the two in many ways. However,  he pointed to issues with the tender rules from SECI. The insistence by authorities on co- location of the two facilities. This reduced the opportunity for thermal asset owners to take advantage of the schemes, as different regions had different mix of stranded capacity versus  RE potential.

Also, by allowing sales only from the date of commissioning of the Renewable capacity for the whole set up, stranded assets donot really benefit immediately. He also got a promise from the minister for a relook.

Vineet Mittal, Chairman, Avaada Group, was, as always focused on specific operational challenges faced by RE developers. He highlighted the failure of the Dispute resolution mechanism, instituted last year by the MNRE, to resolve a single issue.  He also pointed out the anachronism of APTEL not accepting online applications or even payments digitally, even as the CERC does it.

Mr Mittal’s unconventional suggestion to reduce the cost of borrowing for the sector, and  ensure higher contract sanctity, was for the government to step in and guarantee the first 30 % of losses on contracts where government agencies default.

Mr Mittal ended by highlighting that despite the positive intent of the MNRE, actual refunds of GST and SGD were still missing.  That surprised the minister, and he promised to look into the issue urgently.

Parag Sharma, CEO, O2 power had an issue with postponement of bids. Pointing out the many bids that had been postponed in the past quarter, he stressed on the impact such postponements have on back to back plans developers usually make with their partners.

He told the minister about the 2 GW NHPC bid, where all six winners are still waiting for their letters of allotment.

Jayant Parimal, CEO, Adani Green Energy brought in a refreshing dose of candour in his own suggestions.  When asked by the minister, on which of three options would he consider most attractive for manufacturing in India, Mr Parimal’s was brutally honest.

The three options , listed by Mr Singh, were,

1. Manufacturing on the basis of VGF are on the table. Where firms bid on the basis of how much viability gap funding each needs, with the lowest bidder winning.
2. Based on interest subvention on the funding they would raise
3. Bidding based on post manufacturing product support (guaranteed offtake)

Mr Parimal’s answer?  None. He highlighted how, when Adani group first  set up its 1200 MW manufacturing plant, it was completed in 2016, “but it was Dec 2019, when  managed to get some subsidy”. Mr Parimal  blamed the delay on a government system that is simply not designed to disburse large amounts without multiple checks, which slows down the process.

“ We treat government subsidies as probabilistic and not deterministic. Our financial model only considers deterministic” were his memorable words.

His suggestion was for an indirect subsidy that does not come from the government directly.A higher power tariff etc,  differential tariffs might be better” he reckoned.

While the minister expressed his doubts about discoms buying such  higher priced power, Renew’s Sumant Sinha suggested an upfront VGF as a possible solution.

Amit Kapoor, Joint Managing Partner, Jyoti Sagar Associates,   made a case for getting domestic pension and insurance regulators to consider the power sector as an avenue for long term investments , as that would help reduce the cost of funding for strong projects further. He pointed out that foreign pension funds were considering Indian investments, but not our own regulators.

Mr Kapoor also cautioned on the need to make adjustments in the planned Contracts enforcement authority. “ We can’t have situation where regulators and the authority are in conflict over jurisdiction .” This was a real risk, in his view.

Pointing to the impact of the Corona crisis, he said that India must consider a legal provision for a  a standstill on projects to avoid disputes.  Otherwise the law of limitation will cause issues, since players have to act within a time frame to raise issues linked to project execution, which they will, willingly or unwittingly, to cover their interests”

Prabhjit Kumar Sarkar, Managing Director of PXIL, the power trading arm of the NSE,  pitched for a comprehensive power market policy. A policy that would lay down  fundamental transaction rules and the sanctity of contracts is maintained.