Bidding conditions need to structurise for sharing fuel related risks

Bidding conditions need to structurise for sharing fuel related risks“Recent order by CERC is a pragmatic approach towards resolving the log jam that we have seen in various cases in the power sector today,” said Hemant Kanoria, Chairman, DPSC Ltd.
In the current economic scenario, the power sector is facing severe impediments to growth. Even the coal sector today appears to be facing a combination of issues related to development delays of mines, production inefficiencies as well as hurdles in transportation. Then there is adding cost which only hardens the growth of the sector. In an exclusive chat, Hemant Kanoria shares his insights about the power sector.
Could you take us through the journey of DPSC Ltd and its current position?DPSC Ltd., formerly Dishergarh Power Supply Company, incorporated in 1919 in West Bengal, is one of the oldest power utility companies in India. The company was set up primarily to supply power to the Bengal Coal Company, then the largest producer of coal in Asia, to serve the domestic and industrial needs in Asansol-Ranigunj belt in West Bengal. DPSC supplies power to critical industries like collieries, underground mines, state electricity boards, railways, hospitals and so on. Some of our customers include BCCL, DVC, ECL, IISCO, WBSEB, public health engineering and various public utilities.An Andrew Yule company, DPSC went for disinvestment in 2009-2010 and was taken over by India Power Corporation Ltd., which is into renewable energy generation. Since then the group has supported the rapid industrialisation of West Bengal. DPSC is into power generation and distribution. The company has an operating capacity of 12 MW of thermal generation in West Bengal and 100 MW of wind power in Gujarat, Karnataka and Rajasthan. It has a license to distribute power in the industrial belt of Asansol-Ranigunj in an area of 618 sq. km.
DPSC reported a PAT of `11.8 crore for FY12, which is a jump of 108 per cent from FY11. Our net sales were at `538.73 crore up 33 per cent from `405.63 crore reported in FY11. For 9 months in the FY13, DPSC has reported PAT of `12.41 crore and net sales of `434 crore.
What is your current generation capacity and what are your expansion plans?DPSC has embarked its integration process through an amalgamation of IPCL into DPSC. Post merger of the two companies, the group will emerge as an integrated player in the power sector with operations in generation, T&D and power trading. The combined generation capacity of DPSC-IPCL is 110 MW currently.
In the distribution sector, the group is looking to expand its presence to regions beyond the current 618-sq.-km. license area in the Ranigunj-Asansol region. In the last 2 years, the connected load has increased from 100 MVA to 250 MVA and the company is targeting a connected load of 1,000 MVA by 2016. The company plans to set up 400KV and 220KV substations for the required connectivity with the state and national grid in the near to long term.In the generation sector, IPCL-DPSC combine has envisioned a substantial increase in capacity to around 1,300 MW by 2016, 300 MW from renewable sources and another 1,000 MW through thermal power. The company’s 450 MW plant at Haldia is already under implementation and is expected to start in early 2015. Its 540 MW thermal power plant at Raghunathpur is also under development.
The company has also signed MoUs with several state governments for setting up generation plants of 1,320 MW in Bihar and Gujarat each and another 660 MW in Madhya Pradesh. The company is achieving statutory approvals for the same and land identification is in process.
How much are you going to invest to realise your future expansion plans?DPSC plans to invest around of `25,000 crore over the next few years to fulfil its future expansion plans
What is the status of your thermal power plants being set up at Haldia and Raghunathpur in West Bengal?At Haldia, we are setting up a 3×150 (450 MW) thermal power plant with a capex of around `2,475 crore. About 198 acres of land has already been acquired and civil work is under progress. BoP work is being carried on by Bharat Forge and BTG has been sourced from BHEL.
Environment clearance has already been acquired for 3×135 MW, and we have approached the government for amendment for 3×150 MW enhancement. The progress on the plant is going on well, and we should be able to commission by early 2015.
Power will be evacuated from the plant to the Kolaghat substation, operated by WBETCL, at a distance of 2.5 km from the plant. The water required for power plant will be supplied by Hoogly Development Industrial Limited. At Raghunathpur, we are setting up a 2×270 (540 MW) thermal power plant with a capex of around `3,084 crore. The water allocation for the first phase has already been obtained and other necessary consents and approvals for the project are also under way. So far, we have received 155.5 acres of land from the government with a promise of another 145.5 acres for the project. The project is under development now.
DPSC announced a T&D loss of 3 per cent while the industry average is about 25 per cent. How did you able to manage it?DPSC has always maintained an efficient power distribution, which has allowed us to sustain one of the lowest T&D loss figures across India. Our better control systems and regular quality checks have ensured a minimum loss. Also, by an extensive augmentation of our existing systems by building new infrastructure, we have been able to keep a consistent check on energy losses through our networks.
What is your opinion on the status of fuel security as far as thermal power industry in India is concerned?India’s power sector consumes about 80 per cent of the total quantity of coal produced in the country. Uncertainty over supplies from the largest coal producer has led the industry to this massive shortage in supply. This fuel shortage risk is leading to high fuel cost as utilities are having no other option but importing fuel at high spot prices and at a significant premium to domestic coal. In the domestic market too, getting coal linkages is a major obstacle. Fuel crisis has had a telling effect on power generation as India suffered generation loss of nearly 11 per cent in 2011-12. We, however, expect Coal India to increase its production accompanied by some international agreements shortly to increase maximum supply by 2014-15.
Although the Planning Commission has also suggested some bold measures like opening up the coal sector for private players to tackle the growing fuel shortage and appointing a regulator to supervise pricing and mining costs, the suggestions have not yet been acted upon.
On a recent move, NTPC has refused to sign fuel supply agreements with Coal India. How do you see this development?While we recognise that there are severe issues related to fuel availability, especially coal in the power sector today. However, the issue of NTPC signing Fuel Supply Agreement with Coal India is specific to two publicly held organisations. A quick resolution of this issue between these entities would impact the sector positively, and we look forward towards successful closure of the same.
CERC has recently directed Haryana and Gujarat utilities to compensate Adani for costlier coal imports, your comments?We believe that the recent order by CERC is a pragmatic approach towards resolving the log jam that we have seen in various cases in the power sector today. We would like to mention that the bidding conditions for power plants being set up in the country need to create an optimal structure for sharing fuel related risks. The order given by CERC has brought in relief for all these investors.
In budget, the government made announcement of imposing 2 per cent customs duty on coal import. Isn’t it going to make the situation more critical?Considering the economic scenario in the country, where the power sector is facing severe impediments to growth, any policy measures that increase input costs on materials as important as fuel, especially coal are going to impair sentiments.
The coal sector today appears to be facing a combination of issues related to development delays of mines, production inefficiencies as well as hurdles in transportation. On the top of all these, adding costs would only harden the growth of the sector.