‘Essar Power will raise balanced debt to the tune of ~4,600 crore ’

Essar Power senses an opportunity in the lack of fresh investments in thermal power and the government’s notification on mega power projects to improve offtake. KVB Reddy, chief executive officer, Essar Power, talks to Jayajit Dash about the credit climat

Essar Power has commissioned 80 per cent of its planned capacity of 6,100 MW. By when do you hope to reach full capacity utilisation? What is the funding needed and how do you intend to raise it? Essar Power has a current operating capacity of 4,840 MW, which includes 4,755 MW across seven plants in India and 85 MW at one plant in Algoma, Canada. This is roughly 80 per cent of our targeted capacity of 6,100 MW. We have two underconstruction projects, 1,200 MW in Tori, Jharkhand, and 60 MW in Paradeep, Odisha. In total, we require ~5,000 crore for completion of these two projects. We have already infused a significant portion of the equity required for completion of these projects and hence, approximately, ~4,600 crore shall be raised in the form of balance debt. Lenders have delayed funding for the Tori project because of the de-allocation of the coal block assigned to it. We are waiting for the government to announce a linkage policy and for further coal block auctions. As soon as we have fuel security, funding tie up shall commence.

Thermal power producers are finding it difficult to secure long-term power purchase agreements and power offtake arrangements. Despite this, do you think it prudent to expand power capacity?

We are not expanding our capacity. Our focus currently is to complete our under-construction projects and also ensure steady utilisation of our operating projects. Almost all our operational capacity is tied up through the captive/PPA route. Even for our under-construction 1,200 MW Tori project, more than 890 MW is tied up with distribution companies through PPAs. Tying up power offtake has been a challenge in the sector since distribution companies are not coming up with bids. With most states joining the UDAY scheme, we are hoping that their financial health will improve, enabling them to call for bids. The focus of the government has also moved away from augmenting thermal power capacity to renewables, which is an area where significant capacity is being lined up. Since there have been no new investments in thermal capacity augmentation, existing players stand a good chance to ensure offtake of their capacities. Nevertheless, thermal is base load power generation and shall always be required by the distribution companies.

Is the present scenario favourable for independent power producers to secure credit from banks?

It is not just the power sector but the infrastructure sector as a whole that is facing funding issues. The moot point is how to ensure loans do not become bad rather than whether there is a favourable climate for credit. In case of the power sector, various projects, including our Tori plant, have been affected by the coal block de-allocation. With no assured fuel supply, projects have been left stranded with bankers refusing to continue funding. Further, since projects are delayed, banks perceive them as high risk propositions and levy higher interest rate in the 13-14.5 per cent range. When companies are unable to repay, the loans become bad debt, which has a ripple effect on the sector. We must therefore focus on addressing the issues that leave plants stranded and unable to pay loans.

The power and finance ministries need to impress upon financial institutions and banks to continue disbursements to such stranded power projects. These projects must be charged base interest rates (9 per cent) instead of what they are being charged currently (13-14 per cent).

What is Essar Power's debt load and what is your plan for paring debt?

Essar Power has a debt of ~20,000 crore. The debt should be considered in conjunction with the fact that the business has also seen an infusion of ~12,000 crore of equity over a period of time. The maturity of most of the term debt of Essar Power’s subsidiary companies has been aligned to the life of the assets under the 5/25 guideline of Reserve Bank of India (RBI). Improving operational efficiencies will also help us prudently service our debt going forward. Eight out of our nine plants are operational today. We have had a 49 per cent growth in power generation in 2016-17, with more than 1,300 MW of new capacity coming on stream. This includes the 2x600 MW Mahan plant that we restarted in May 2016 after a gap of 19 months. Since then, Mahan has been operating without interruption, banking on e-auction coal from Coal India Ltd. We have a judicious mix of captive, PPA and merchant offtake and we have put in a lot of effort to reduce our operational costs significantly. In the last two fiscal years, we have made significant improvements in efficiency and plant availability while bringing down input costs.

Essar Power was looking to sell its gas-based power plants at Hazira. Have you found potential buyers? Are you contemplating relocating these projects to Indonesia?

Currently, we are not contemplating relocating our gasbased projects. Gas prices have come down and we are trying to restart the plant again.

The government has extended sops for mega power projects. How will this help Essar Power?

The recent notification on mega power status is a relief for plants that had obtained provisional certificates, like our 1,200 MW Tori power project in Jharkhand. We have PPAs/MoUs to the extent of about 98 per cent of the total plant capacity with the distribution companies and hence are confident of achieving mega power status shortly. The extension gives us additional time to tie up the balance power offtake in accordance with the requirements of the policy.

What was the level of your thermal coal imports in 201617 and how much are the projected imports for 201718? Is it still viable to run your units on imported coal?

In last fiscal year, we imported 2.5-3 million tonnes of coal for our Salaya plant with a gross calorific value of 5,000 Kcal/Kg and in 2017-18 the amount should be similar, though the quantity may vary depending on the GCV of the coal procured. The tariff for this power plant is fixed and therefore earnings are prone to fluctuations in imported coal prices. Since coal prices have increased in the recent past, earnings are impacted. However, if and when imported coal prices come down, the earnings from this power plant shall improve.

Does Essar Power have any plan to foray into solar power?

We are currently focussed on completing our under-construction plants and optimising operations at our existing plants. Foraying into solar energy will purely be an opportunity-based strategic call depending on projectwise economic viability.