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<p>Neeraj Thakur Biography</p>
For the sake of explanation, world’s largest coal miner, Coal India Ltd (CIL) can very well attribute the 18 per cent decline in its net profits - to Rs 4,434 crore for the January-March period - to a one-time write-off. But the public sector behemoth, which is being considered for a massive restructuring by the new government, will need to fix a lot of systemic problems if it has to maintain its profitability in the coming months.Here is why.While CIL claims that the decline in profits happened due to a write-off of Rs 876 crore as settlement for a quality dispute with its largest customer National Thermal Power Corporation, the fact remains that despite various claims, the company has failed to ramp up its production over the last two years.Production and sales by volume during the March quarter at 143.22 mt and 129.94 mt, respectively, were flat compared with last year. For the full year, the company produced 462.42 mt of coal—20 mt short of its target, but marginally higher than its previous year’s output of 452.21 mt.Now, let us look at the company’s production for FY14. CIL which accounts for over 80 per cent of the domestic coal production missed its output target of 482 MT in the last fiscal year and just produced 462 MT coal.A look at FY13 tells the same story. The company produced 452.5 MT coal, short of the goal of 464 MT in that year.It’s not only the inability to ramp up domestic production that is troubling CIL. Though flush with huge reserves, it has not managed to acquire significant overseas assets (just two acquisitions so far), an apparent sign of the company management’s inability to take quick decisions when it comes to aggressive biddings against other international companies.The company has also failed to acquire new technologies to exploit underground mines, say experts.Even though the company claims that more than technology, environment hurdles stop it from increasing production, but the fact remains that adopting clean technologies has not been the CIL’s top priorities.The decision of Narsing Rao, CMD, CIL to quit his tenure mid way will add to woes of the company in taking decisions which is used to enjoying its monopoly in the market, industry observers say.The only hope for the company is visible in the prospect of government preparing a plan to give more power to CIL’s subsidiaries. Trade unions, which otherwise have been dead against any disinvestment in CIL have shown positive signs on this issue. Unleashing the power of CIL’s subsidiaries is important for a behemoth finding it tough to fight its lethargy.
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A stellar performance by the Narendra Modi-led Bhartiya Janta Party in the Lok Sabha elections, has raised great expectations from corporate India. With the share market touching new heights, the investors’ community wants the new government to hit the ground running and show results over the next three to four months. The counting trends suggested that the BJP will touch the magic figure of 272 seats on its own while its allies will take the final tally to more than 330- a brute majority after almost 30 years for any party in the country. Sumant Sinha, Chairman & CEO, ReNew Power Ventures Ltd said “The expectations are high. Now the new government has all the tools at their disposal and India needs a lot of things to get done at this point of time.” (Watch Video) On the question of how much time does the government needs to prove its mettle, Sinha said “They (government) would be in business right from day one but I would give government a month or two. The real and the more important point is going to be the presentation of the new budget and the government needs to move forward from their implementing their policies” While the UPA government, too, had reformist agenda for the economy, but it failed to implement its policies on ground, according to India Inc. Sectors like health suffered due to red tapism and lack of will in implementing the policies Talking about the failure of the public Private partnership in the health sector, Dr Naresh Trehan, CMD, Medanta hospital said “In the planning commission makes a policy, the finance ministry starts its own model, when the finance ministry send its model to the health ministry, then the health ministry comes up with its own model. .. So nobody is in charge. If Mr Modi means business we can get it done in a few months and can get going.” (Watch Video) The first few months will require the Modi government to come up with a concrete plan to revive the Indian economy which is growing at less than 5 per cent at the moment. Also Read: India Inc Hails Modi Victory, Looks For Bold Reforms“This government should have a short term plan, which they can demonstrate over the next 2-3 months. They should also demonstrate what are their medium term plan and a long term plan which goes beyond 5 years.” (Left to Right) SK Munjal, Vishnu Mathur & Nick Senapati (Click To Watch Videos
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The resistence being shown by Delhi’s three power distribution companies on getting their accounts audited by the Comptroller and Auditor General of India (CAG) is uncalled for. If anything, this audit will help them come out clean in public on their long pending issues with the Delhi Electricity Regulatory Authority (DERC). The private sector companies aver that the government auditor has no right to audit their financial accounts. The same argument was made by Reliance Industries in case of KG-D6 basin and the telecom companies during the investigation of 2G spectrum scam. This simplistic interpreation of the law under which the CAG was established says that CAG can audit the accounts of only government sector companies, but in the era of Public Private Partnership and where the private sector firms are doing business using the assets of the government, the private sector companies will have to go through the scrutiny of the public auditor. The Supreme and the the High Court have manifested this in their rulings. In its affidavit, the CAG has said that that out of 311 queries raised by it, 211 have been responded in full, 20 queries were partially answered. Tata Power Delhi on its part has said that owing to the voluminous nature of data of the pending requisitions, some amount of time is needed to compile and respond. Reliance Infra owned BSES Rajdhani has said "We have been fully co-operating in the audit process and would continue to do so. We have already submitted complete information on 306 queries, spread over 20,000 pages. Auditors have also been provided viewing rights on our entire data base. While there could be some merit in the time taken by Delhi’s distribution companies in providing their details, it is a well known fact that even the ministry of coal played the same tactic during the CBI investigations on the coal scam and the court will sooner or later take cognizance of this fact. Delaying the result of the ongoing audit could be a good tactic in the hope that a favourable government comes to power in Delhi and uses its clout to subdue the auditing process of the Delhi discoms’ financials. But, if the companies have clean accounts by cooperating with the CAG, they will actually be able to resolve the issue of Rs 27,000 crore of dues that the DERC owes to them collectively.
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Before 10 december 2013, NTPC chairman Arup Roy Choudhury, in all his public interactions, preferred to talk about the plant availability factor (PAF) of his plants rather than the plant load factor (PLF). The reason being incentives for power generation were linked to PAF and not PLF. But all this changed post-10 December when the Central Electricity Regulatory Commission (CERC) came out with its draft tariff regulations for the period 2014-19. The NTPC stock tanked over 11 per cent in a single trading session.Such was the measure of panic that the company called a press conference the day after where Choudhury made an attempt to allay fears about the consequences of the CERC draft. “There is always a significant difference between the draft and the final version of tariff regulations. There is no need to panic,” he told reporters. He added that the regulator’s proposal to link incentives to PLF was a mistake. “Even CERC knows that PLF has no value in our business. We will present our views to the commission,” he said.Famous last words! When the final guidelines came out on 24 February, NTPC along with many other power producers operating on the cost-plus model — where costs of material, labour, overheads are added to a markup percentage — were in for a bigger shock. The regulator had, in addition to a host of stringent norms, withdrawn tax benefits enjoyed by firms that followed the cost-plus model. NTPC’s stock plumbed to a five-year low. NTPC moved the Delhi High Court 10 days later to seek a stay on the order which, according to the company, would make cost-plus generation unviable. Even though the court refused to stay the order, it asked CERC to file an affidavit justifying the regulations. At the next hearing on 19 May, CERC made a plea for more time. A hearing is scheduled for 24 July.NTPC operates 23 coal-fired power plants with an aggregate installed capacity of 42,464 MW. The company accounts for around 18 per cent of India’s thermal power generation. Interestingly, the CERC regulation has brought together — for the first time — two otherwise warring parties, namely, NTPC and the Association of Power Producers (APP) which represents 22 private power developers that also follow the cost-plus model. Though both parties have filed separate writ petitions against the regulator, the high court has decided to take the petitions up together.The Sticking PointsThe CERC order mandates that the station heat rate (SHR) — a term for calculating the amount of heat required to generate one unit of electricity — should be computed on an ‘as received’ basis rather than on an ‘as fired’ basis. “Any arbitrary practice of using ‘as fired’ gross calorific value (GCV) for SHR calculations without proper guidelines for determining the same will only lead to inflated claims of coal consumption,” reads the order.The regulator, to buttress its argument, has quoted from a Central Electricity Authority report which, in turn, bases its findings on illustrations from international publications. The report estimates the maximum loss of just 3 per cent in the calorific or heat value of coal after 10 days storage — or about 3 Kcal/Kg for an ‘as received’ coal consignment with a GCV of 3,500 Kcal/Kg. However, NTPC, in its petition filed before the high court, claims that “it is not feasible to measure the GCV of incoming coal with reasonable accuracy when it is still on the wagons, prior to its crushing and removal of foreign material, etc”. It further states: “The best practices to monitor GCV of coal requires that coal be crushed to below 50 mm size which, on a routine basis, is done in the power plants.”APP, on its part, also points in its petition that the guidelines related to GCV did not form part of the draft issued in December 2013. “The CERC seems to have picked up recommendations of a report prepared by the Central Electricity Authority without consulting stakeholders. How can you bring in the regulation without discussing its impact with the parties involved,” asks Ashok Khurana, secretary general, APP.In its petition, APP claims, “It is pertinent to point out that CERC did not propose the change in methodology of determination of GCV in the Draft Tariff Regulations 2013, published as per the requirements of Section 178 (3) of the Electricity Act to provide an opportunity to the stakeholders to make comments and suggestions.”Khurana goes on to state that “this is the first time that CERC has not come out with a statement of reason (SoR) even a month after issuing its tariff order. Usually, the practice has been to publish the SoR within two to three days of issuing an order”.Anil Razdan, former secretary, Ministry of Power, offers a balanced perspective. “Not giving prior notice may be a reason for re-opening the case. There is merit in the argument of NTPC and other power companies. But there is also merit in the argument of CERC that ‘what you receive is what you receive’. If you allow the quality of coal to deteriorate, then, you should be responsible for it.” On the issue of SHR, the CERC regulation stipulates a reduction of 50-75 Kcal per unit of electricity generated. This is applicable to plants of 200, 500 and 660 MW capacity. A 200 MW plant, for instance, uses 2,500 Kcal at present to produce one unit of electricity. It will now require 2,450 Kcal to produce the same power. break-page-breakNTPC argues that SHR of a power station is a function of PLF. Higher the PLF, better the SHR. In the past two years, PLF of all plants across the country has come down for reasons beyond the control of the power producers. “In the Tariff Regulations 2014, CERC has determined the applicable SHR without providing for any margin and based on an average of actual operational values observed in the last 5 years… In the later years (2011-13), there was a significant reduction in the demand for electricity and the generating stations were operating at a low PLF,” reads the NTPC petition. NTPC’s PLF (see Losing Steam) has come down by close to 10 per cent since 2009. The Central Electricity Authority, while making its recommendations to CERC, had used a weighted average of PLF of NTPC’s best performing plants.NTPC has argued that over the past two years, power producers were finding it difficult to maintain a high PLF because of low fuel availability. Besides, even the new fuel supply agreements being inked assure only 65 per cent of fuel requirement. Further, the burgeoning of solar and wind projects has seen discoms preferring to draw power from them whenever they generate electricity, leading to lower demand from thermal power plants.Another CERC regulation that is worrying cost-plus power producers is the linking of incentives to PLF and not PAF as is the practice. PAF measures the generation capacity available, whereas PLF is based on the actual power that is generated at the plant. According to the new rules, an incentive of Re 0.5/Kwh will be given if the normative PLF is achieved. In case the company does not achieve the PLF, it will be penalised.According to Pramod Deo, former chairman, CERC, the norm will ensure that discoms pay incentives only for the power that they take from producers. This, in turn, will lead to lower tariffs and help improve the financial situation of discoms. However, the regulation will lead to a substantial loss of revenue for power producers. NTPC, for instance, will lose Rs 140 crore a year for every 1 per cent dip in PLF, says Deo.NTPC said the change in incentive payment would only benefit discoms and not consumers. All its capacity addition plans were based on incentives for PAF. In the absence of such incentives, capacity addition would suffer, impacting consumers.Another regulation that hurts cost-plus power producers is the withdrawal of tax arbitrage. Under the new dispensation, discoms will reimburse the tax that producers pay on the applicable 15.5 per cent return on equity (RoE), instead of the normative corporation tax earlier.Currently, some power producers enjoy a tax holiday in certain stations, paying just the minimum alternate tax of 20 per cent instead of the 33 per cent corporation tax. However, they are reimbursed by discoms at the rate of 33 per cent. The new rules will deprive NTPC and other generators of this tax arbitrage. As a result, NTPC stands to lose about 5 per cent in its post-tax return on equity. This would bring its FY15 earnings down by 6-7 per cent.This rule will hurt investors the most. According to Deo, “NTPC was the best bet for investors as it earned more than the mandated cost-plus rule of 15.5 per cent of RoE. So, if the regulator withdraws that amount, they will definitely be hurt.” Razdan, on the other hand, says the regulator had done the right thing in withdrawing the tax arbitrage. “The onus is on the regulator to try and minimise the cost of power. The regulator should look to balance the health of generators, discoms as well as consumers. If only the generators make money, then the discoms as well as the consumers will not be in a position to buy power in future. This will affect the sector in the long run.”According to data from the Power Finance Corporation on the performance of state power utilities from 2006-07 to 2011, the cost of purchasing power forms 61.62 per cent of the total expenditure of discoms. Besides, the purchase cost of power for discoms has increased at a CAGR of 16.42 per cent in the same period. In the case of Delhi’s discoms, the cost of power has gone up by more than 100 per cent in the past three years due to the increased cost of fuel which is passed on by power producers.Says Kuljeet Singh, partner, EY: “The regulator has committed the mistake of bringing in the right regulations at the wrong time. At this point in time, no private player is interested in the power sector because of various hurdles. Bringing down the tax benefits of power developers will only make investors shy away from the sector.”The PhilosophyGirish Pradhan, chairman, CERC, did not speak to BW. His predecessor Deo helped decode the philosophy behind the ‘harsh’ order. “The government wants to encourage companies to take up projects through competitive bidding. NTPC has made enough profits through its cost-plus projects. We need investments in competitive projects that will see investment from the private sector.”On being asked whether future investor sentiment will be hurt by these rules, Deo says: “There is just about 14,000-20,000 MW of capacity under the cost-plus model that is in the pipeline. This isn’t significant. The future is in competitive bidding and the regulator is giving incentives to promote investments in the sector.” (This story was published in BW | Businessworld Issue Dated 30-06-2014)
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World’s fifth largest wind turbine manufacturer, Suzlon, said it has been awarded a 100.8 MW order by ReNew Wind Power. The project is scheduled for execution at the Bhesada wind site in Jaisalmer, Rajasthan. Suzlon will provide 48 units of its S97-120 metre WTGs and will also oversee operations, maintenance and service of the wind site over the contracted period.The S97-120 meter tower design is a combination of Lattice & Tubular structure, making it the tallest wind tower in India. The towers are designed to harness the optimal available wind resources and deliver higher energy productivity, which ensures higher rate on investment, according to the company.Sumant Sinha, Chairman & CEO of ReNew Wind Power said “This deal reinforces our commitment to developing sustainable energy solutions for India. Our partnership with Suzlon has added momentum to this mission”.ReNew Power has over 450 MWs of installed and operational clean energy capacity across the states of Maharashtra, Rajasthan, Karnataka and Gujarat. Tulsi Tanti, Chairman of Suzlon Energy Limited said “Leveraging on our leadership position within the country, we continue to have a strong focus on the Indian market as it offers a favourable renewable energy environment especially now with the new Government in place. We continue to create innovative and reliable products as with the S97-120m which is specifically made for low wind sites. Our mission is to make profitable and efficient wind energy accessible within the country”. Suzlon energy reported an increase in revenue for the quarter ended from Rs 4,336.44 crore to Rs 6,645.05 crore, the highest in the last eight quarters.The net loss for the quarter ended 31 March narrowed to Rs 603.45 crore from Rs 1,912.72 crore in the year-ago period.The company is planning to mop up about Rs 1,000 crore from the sale of non-core assets in this financial year. The wind energy major has already raised more than Rs 700 crore by selling two non-core assets.Suzlon’s global operations are spread across 31 countries. The company has a strong workforce of 10,000.
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Cairn india is not only India’s fastest growing company in BW | Businessworld’s Middleweight category (revenues in the range of Rs 5,000 crore to Rs 9,999 crore) for FY2014 but also the fastest growing oil and gas explorer globally over the past two years. The company has achieved this feat on the back of a mega oil discovery at its Rajasthan oilfield, located near Barmer.The Cairn India management’s belief in its abilities led it to persist with a field in which global major Shell had failed to find oil in the 1990s. “We drilled 13 dry wells when we took over the Barmer oilfield from Shell. We succeeded in the 14th and named it Mangala, the auspicious. We always believed that we could make it happen. And, in 2004, we made the largest oil discovery in India in over two decades after Bombay High,” says Sudhir Mathur, CEO, Cairn India. To succeed in one of India’s toughest fields, the company deployed advanced technology from North America.In the past two years, the company has brought four fields into production and there has been a 300 per cent increase in its crude output over four years. The result: a Rs 38,500 crore reduction in India’s crude oil imports in FY2013.Cairn India is among the top 20 global independent exploration and production companies, with a market capitalisation of $10 billion. At the moment, the company accounts for 25 per cent of India’s total crude oil production. It has made 40 discoveries so far with 1.3 billion barrels of oil equivalent (BoE) of gross proved and probable reserves and resources.At a time when other oil companies in India are struggling to meet production targets from oil and gas blocks, Cairn India has achieved 100 per cent reserve replacement ratio — which effectively increases the life of oilfields. “Reservoir management is key to sustained production in the oil and gas business. We have tied up with the University of Texas to develop technology to increase the life of our oilfields,” informs Mathur.An example of Cairn’s use of technology to increase output from its oilfields is its Ravva block, located in Andhra Pradesh. The block currently produces 29,151 BoE per day. So far, the company has extracted around 250 million barrels of oil from the field as against its total reserve estimates of 100 million barrels of oil. Cairn India’s portfolio has nine blocks — one in Rajasthan, two on the west coast, four on the east coast and one each in Sri Lanka and South Africa. The company has three producing assets: Rajasthan and Cambay in the west and Ravva in the east. In Rajasthan, the company has five producing fields — Mangla, Saraswati, Bhagyam, Raageshwari and Aishwariya. The block currently produces around 200,000 BoE per day. The company has invested over $4.5 billion as capital expenditure. “In three years, we aim to produce 300,000 BoE per day from our Rajasthan field. The output will double three years from now, taking our share of the country’s total production to 40 per cent,” says Mathur.Cairn India has drilled over 100 exploration and appraisal wells in its Rajasthan oilfield, and the number of wells will be increased to 450 over the next three years, says Mathur. “Drilling wells is a costly business. So, as an explorer our success depends on finding oil or gas with the least number of wells. Our technology has kept us ahead of our peers in striking oil from wells,” adds Mathur.Oil’s well for Cairn India! (This story was published in BW | Businessworld Issue Dated 11-08-2014)
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After meeting the bankers to deal with the rising NPAs in the power sector, Piyush Goyal, minister for Power (Independent Charge) has called for more private sector participation in the distribution sector.The minister met a delegation of 24 banks to discuss the rising NPAs from the power sector due to which financial institutions have stopped lending money to the power sector.The meeting was attended by heads of all big private and government sector banks including Chanda Kochar, (ICICI bank), Arundhati Bhattacharya(SBI) Rana Kapoor (Yes Bank) among others.The bankers have refused to extend loan to the power sector projects on concerns related to fuel supply, power purchasing agreements and environment clearances.“We have all resolved that we shall work as a team to bring about synergy and sort out the problems in the sector. We will look for more private participation in distribution and would require state support for this task," he said. At present, cities including Delhi, Mumbai, Kolkata, Surat and Ahmedabad, along with Odisha state, have privately owned power distribution companies.On 19th of this month, Goel had met the heads of power sector companies to understand their issues.According to a report by rating agency Moody's, 20 per cent of the impared loans at all the PSU banks come from exposure to power distribution companies.According to a report issued by KPMG in 2013, a shortage of fuel has stranded more than 33,000 megawatts (MW) of power generation in India, and if the situation does not improve fast, Indian banks could be staring at a bad debt of more than Rs.1 trillion”Total exposure of banks to the power sector alone exceeds Rs 3 lakh crore, the bulk of which relates to generation projects, the paper notes.In 2013, advisor to the then Planning Commission deputy chairman, Gajendra Haldea, had reprimanded Indian Banks' Association, in a letter saying, "The banks evidently lent enormous sums of money to power producers who were encumbered by the fuel price risk as well as the fuel availability risk. This could well be described as 'banana banking'.The UPA government on its part had offered 1.9-lakh-crore financial restructuring plan (FRP) for the power distribution sector.Under the scheme, 50 per cent of the short-term outstanding liabilities would be taken over by the state governments and the remainder would be restructured by providing a moratorium on the principal and the best possible repayment terms.(With inputs from agencies)
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