'Debt Problem Closely Linked To Mundra Under-recovery Issues'

Tata Power's acquisition of Welspun Renewables' solar and wind power assets is the largest deal in the renewable space in India. The acquisition enabled the firm to deliver significant value for all stakeholders as most of the assets were revenue generating and operating assets. Tata Power further enhanced value of these assets with its operational experience and financial optimisation.

In an interview with BW Businessworld’s Naina Sood, Tata Power Chief Executive Officer and Managing Director Anil Sardana speaks about the need to pursue growth in renewable energy sector and the company’s growth and future plans. Edited excerpts:

On Welspun acquisition and progress so far ...
In mid September 2016, we completed the acquisition of Welspun renewables. With this acquisition, we have become India’s largest renewable energy company. Welspun Renewable Energy Pvt Ltd (WREPL) has about 1,141 MW of renewable power projects comprising 990 MW solar power projects and about 150 MW of wind power projects. Today, Tata Power’s total generation from non-fossil operating capacity stands at 3060 MW, which amounts to almost 30 per cent of the company’s total generation capacity.

Our non-fossil fuel portfolio comprises 693 MW of hydro, 918 MW of solar, 1074 MW of Wind, and 375 MW of waste gas based generation. The Welspun generation is tracking the assumptions used for acquisition and we are looking forward to FY18 being the first full year of operations, for it to contribute effectively to top and bottom line.

On company’s performance in the last one year
The company’s performance in the last one year has been positive. This is a testament to our strong operational efficiencies and good business acumen. Our Q3 consolidated profit after tax was up by 38 per cent mainly due to improved performance by key Indian subsidiaries and coal companies, coupled with a favourable tax credit. Profit from operations stood at Rs 1,555 crore, up by 16 per cent from Q3 FY16 mainly due to recent solar acquisition, on account of full capacity tie up for MPL and turnaround of Tata Power Solar. Together with its subsidiaries, Tata Power group achieved generation of 13,022 MUs of power from all its power plants till end of third quarter.

On Welspun-like deals in the near future
We continue to evaluate all possible opportunities both through organic and inorganic development. We are committed to maximising long-term shareholder value for our stakeholders and are constantly on the lookout for new and exciting opportunities. The company's wind generation capacity has increased by 82 per cent in FY17, up from 591 MW in FY 16 to 1074 MW in FY 17. At the very start of the year, we had commissioned 36 MW wind capacity and about 64 MW is under advanace construction, wherafter 100 MW wind far would be working at Nimbagallu in Andhra Pradesh.

On expansion of overseas portfolio
While Indian market continues to remain the primary focus of business for Tata Power, it also dawned on us that due to fuel-linkage issues and demand shortages, land-availability cycle as per new Act and delays in various clearances, the pace of opportunities in India may move to fruition slowly. We have been making investments into projects in select international geographies to strengthen and diversify its portfolio and aiming to set up 2,600 MW of capacity abroad. We has prioritised four key regions for international play- African Region, South East Asian Region; Middle East Region and Saarc region and deployed resources at the moment to understand the dynamics.

Tata Power's 50:50 joint venture in South Africa, is operating a Wind portfolio of 229 MW. We are operating 126 MW Dagachhu Hydro Power Corporation in Bhutan. Additionally, the company is in commissioning stages of its 187 MW Adjaristsqali hydro project in Georgia. The Company is also operating 120 MW Itezhi Tezhi Hydro Project in Zambia.

To explore and develop investment opportunities in the Russian energy sector, Tata Power has signed an MoU with the Ministry for Development of Russian Far East, Government of the Russian Federation.

On company's total debt of approximately Rs 45,000 crore
The company’s debt to equity ratio at Standalone is quite healthy. At consolidated level the debt to equity ratio is about 2.8 and in line with sector normative norms it needs to be brought down to 2.3 or below. The company is working towards sale of non-core investments and other alternatives to achieve its objective.

Also, the entire issue of debt has been largely due to Mundra under-recovery issues. We are hoping that a resolution to this problem could happen through a favourable court decision. If and when that happens, the cash flows and the funding needs would be favourably placed. The order can be expected before the end of current year.

On increasing module capacity and huge competition from much cheaper Chinese modules
We expanded and modernised our cell and module manufacturing facility in Bengaluru. The two-stage expansion doubled the company’s module capacity to 400 from 200 MW, and increased its cell manufacturing capacity by 65 per cent from 180 to 300 MW. Also, it improved the efficiency of cells and modules to current market levels.

We were able to ramp-up to full capacity in record time, significantly better than global benchmarks, owing to its highly skilled and trained team. This expansion, the second in less than three years, is a testimony to our Solar’s commitment to manufacturing, in line with India’s ‘Make in India’ campaign.

On how to revive ailing Discoms and improve distribution system
While financial stress on Discoms is a huge concern there is a significant opportunity for improvement in this space. The power sector needs growth as per macro indicators, as India’s per capita consumption is one third of global average, as also the consumption of fuel-oil used in DG sets is still high.

The Discoms are trying to reduce their AT&C losses too. While some progress has been made at reducing the AT&C losses, at approximately 25-27 per cent at last count, these still remain substantially higher than similar global benchmarks. Despite the structural and policy reforms which have already been implemented in many states in the country, there has been a very dismal improvement in efficiencies in the distribution segment of the power sector. Out of the total 56 power distribution utilities, the AT&C losses for 33 utilities continue to remain at more than 30 per cent.

UDAY scheme for distribution is one of the enabling policies that have ushered the investment confidence of the sector. It is pertinent to add that our distribution operations at Delhi and at Mumbai are benchmarks. The AT&C losses are down from 53 per cent plus (in 2002-03) are now at lower level than 9 per cent. We need Delhi like reforms, if consumer has to be provided world class services in power distribution.

On challenges realising India's renewable ambition
The government of India has been aggressively pursuing renewable energy sources for a low carbon growth strategy, however there are many concerns that are yet to be addressed. First, there is an urgent need for a strong financial structure by way of “must run” status and offtake, as also payment security mechanisms in place. The falling health of Discoms is a matter of serious concern. Moreover, the execution of the RPO mechanism needs to be strengthened as well.

In addition, there is a need for a transparent procedure for land acquisition which have been an ongoing issue. There is a need for identifying and developing land banks in appropriate areas. The sector has witnessed a steady growth through private sector participation however there is a need for concerted effort from all the stakeholders towards mitigation of some of the key obstacles hindering the growth of the sector.