Exclusive interview with Dr. Rajib K Mishra, Executive Director, PTC India Limited. Dr Mishra will address the Infrastructure Investment track at African Utility Week on: The investment environment in India.
Can you give us an overview of your company’s history and activities?
PTC India Ltd. (PTC), the leading provider of power trading solutions in India, was established in the year 1999 as a government of India initiated Public-Private Partnership, with a primary focus to get investments in the power sector. A unique aspect related to the emergence of PTC has been the association of well-established organisations in power generation, transmission and finance, as promoters namely NTPC, PGCIL, PFC and NHPC. PTC was set up to establish a power market and act as a credit mitigating agency for mega power projects through long term power purchase agreements and back-to-back power sale agreements to various state utilities which in turn was viewed to encourage private sector investment in power sector to enable quick capacity addition.
PTC pioneered the concept of power trading and for more than 10 years has continued to maintain the No. 1 position. It was only after the emergence of PTC and due to its resounding success, that the Electricity Act 2003 recognised power trading as a distinct licensed activity. PTC today is not just the leading power trader in the country, but also the co-promoter of 1st National Power Exchange in the country besides diversifying into the unique role of a complete energy solutions provider being involved in:
- Trading – short/medium/long term
- Cross border trading
- Trading on power exchanges
- Power tolling arrangements
- Financial services (debt, equity, CER financing etc.) through its subsidiary PFS
- Fuel intermediation through its subsidiary PEL
- Advisory services
PTC brought innovative concepts about product and services hitherto unheard of – weekly billings, time-of the-day power such as peak power, round-the-clock power, off-peak power, weekend power, day-ahead power, as well as long term power. Cross border trading is another pioneering move made by PTC in recent times adding immense value to PTC, Nepal and Bhutan.
PTC has now expanded its business operations and moved towards being an integrated energy player. It has two subsidiaries – PFS (PTC Financial Services) and PEL (PTC Energy Ltd.). While PEL is wholly owned, it has 60 % stake in PFS, now a listed company. In the beginning, Goldman Sachs and Macquarie bought the remaining stake in PFS as strategic investors. PTC holds significant stakes in various other ventures in power sector like Athena Energy Ventures, Teesta Urja Limited, Krishna Godavari Power Utilities, etc. PFS has also taken equity stake in various power projects across the country.
What are the main challenges utilities in India are facing?
Power sector reforms started in India in 1991. The last two decades of reforms have yielded mixed results. The reforms in power sector were more externally driven than from within. Pushed by the World Bank, Asian Development Bank, etc., the restructuring resulted in separation of generation, transmission and distribution which, actually, has happened more in form than substance. Tariffs have not been revised for several years due to various reasons (social and political) due to which the gap between cost incurred and revenue realised has been increasing which in turn is contributing to mounting losses by electric utilities. The government started the Accelerated Power Development and Reform Program (APDRP) program to address these issues but it has yet to show its full results. Generation utilities are also facing problem of fuel shortage which is decreasing the PLF. Imported coal is one option but it will increase the generation cost and will push these utilities deeper into the red if there is no revision of tariffs.
To face and counter these challenges, all stakeholders including regulators have to work taking a holistic view. For deciding the tariffs for the coming year, regulators should not wait for utilities to file their Annual Revenue Requirement (ARRs). This will get a fill up after the Appellate Tribunal’s (Aptel’s) landmark judgment stating that regulators have suo moto power to revise the tariffs even if the ARRs are not filed.
The utilities must be corporatised in true sense and utilities should be allowed to work in an independent manner. And most importantly, tariff revision is immediately required. Many states revised tariffs in 2011 by different quantums which is a healthy sign. Consumers must be educated that the times of free power are over, generating electricity costs money which the users must pay.
What would you say are the biggest successes so far?
The year 2011-12 was quite challenging for the entire power sector but still there are some feats achieved in the sector which we can boast of. The capacity addition in the 11th plan is expected to be around 55,000 MW which, despite being lower than the revised target of 62,000 MW is the highest figure for any plan. The capacity addition figure of 19,459 MW in current financial year (FY) is also the highest ever for any FY. Total generation in the country is expected to be 875 BUs, 8% higher than last year.
Apart from the statistics, a general realisation across the sector that tariff revision is desperately required to save the sector is a positive step. Aptel’s judgment as mentioned above and the Ministry of Law’s opinion about consumers of load of more than 1 MW being deemed Open Access (OA) consumers are also encouraging.
The short-term power market is showing steady growth and is expected to be more than 10% of total power generation in the country (excluding UI) within next two to three years from the current 6-7%. Renewable Energy (RE) is being rightly given more focus. REC trading has seen a tremendous rise (~600,000 certificates have been traded so far since Feb’11). Enthusiasm by players in RE can be seen from the fact that batch 2 of Jawaharlal Nehru National Solar Mission (JNNSM) saw 150 companies offering 2,500 MW of projects, seven times the allocated capacity.
The advent of multiple power exchanges in a deficit scenario is a feat achieved nowhere else in the world. Exchanges have provided a transparent platform and market players are increasingly using it to meet their power requirements.
Private players have been showing increased interest from the past few years in the sector (45% of total capacity addition in 2009-10 was from the private sector, 35% in 2010-11). Private share in installed capacity has increased from 12% to ~23% in last five years. Private sector participation is necessary to fund the mammoth requirement of Rs. 1 trillion for infrastructure sector in 12th plan.
How relevant is the experience in India for South Africa?
Both the nations are amongst five fastest growing economy (BRICS). India and South Africa are similar in many ways – economically as well as climatically. There is great scope of synergy as well as co-operation for both the countries. Our growth trajectories have been similar, though a few years apart. Both are esteemed members of BRICS and the trade between two countries is growing rapidly.
India has shown that with right kind of progressive Acts (Electricity Act 2003), policies and regulations, one can attract large scale private investment. We have kept pace with the global changes/challenges. India’s plan to focus on RE and nuclear due to climate change concerns is attracting the world’s leading players in the sector. It has also brought tremendous investment and opportunities in India. We have shown the world how to generate competitive power even in a deficit scenario.
African countries can achieve the same with a long duration vision and with right kind of policies, regulations and transparency.
What has the investment environment in the power and infrastructure sector been like in India?
Infrastructure in India requires huge investment and according to the Planning Commission, the funding requirement in the current plan is more than US$500 billion, of which the power sector alone requires in excess of US$150 billion. It is expected to rise by 100% in the next plan. Public sector capability to fund such a mammoth requirement is limited. Hence, it is imperative that private sector participation is increased.
Development of the power market in India has created an investor friendly regime wherein the transition is from a cost-based to a market-based tariff. Seeing the rapid growth of the short-term power market mentioned above, a number of IPPs have shown interest. It is expected that in coming years, private investment will be in excess of 30%. In 12th plan period as well, this trend of increased private sector participation is likely to continue but some issues need to be addressed if we are to have sustained private sector interest. We must realise that there are competing opportunities in the sector and there is a lot of money chasing a few good projects.
What surprises you about this industry?
Indian power sector is saddled with certain bottlenecks like fuel issues, approval delays, inadequate transportation capacities, etc. Sometimes, social and political issues overpower commercial decisions. We always set our targets very high but miss them. Capacity addition in the 11th plan is again below the target though the performance is much better (89% of the target) than previous plans.
Despite all these roadblocks and misses, the power sector is still growing and attracting investment. The short-term market is growing, private sector participation is increasing – this is all because of the tremendous faith investors have in India and the Indian power sector. The Electricity Act 2003 and the right kind of regulations have enabled movement of power from deficit to surplus in areas, creating new opportunities. On top of that it is the will of the industry to continuously come out with new products to meet the requirements of customers. PTC India has been at the forefront of bringing innovative products and services in the market.
The structure of the industry with central, state and private players is also unique. On one hand, we have world class performing players having PLF of more than 90%, on other hand there are players with sub-standard PLFs – depicting lot of scope for learning within the industry itself. The transition from full government control to regulators has also been smooth. Regulators have come out with progressive regulations to help the sector grow.
Example of a power exchange in a deficit scenario is also the first and only of its kind in the world. Despite apprehensions that the time is not ripe for a power exchange, it has been functioning quite well and meeting global standards.
Lower tariff in a deficit situation is also a surprise to many. But this can be attributed to the Indian way of being cost effective in their operations. Sourcing fuel from one source, equipment from other, we have been able to keep our costs low with this entrepreneurial approach.
What is your vision for the industry?
If power sector has to grow, it has to compete with other sectors in the country for financing, business attention and government focus. The risk vs. reward should be such that encourages private sector investment in the sector. Still 85% of the power generated is in the state controlled utilities.
For this, we have to create a level playing field without any special treatment for public sector utilities. The provisions of Electricity Act, 2003 and National Electricity Policy should be implemented in their true spirit. The regulatory environment has to bring in a level of certainty in the sector. Regulatory commissions should play the role of enablers in the sector. Turnaround of distribution utilities is very important which should be achieved at the earliest opportunity.
The infrastructure sector must grow at a rapid pace to support the growth of other sectors, including the power sector. Constraints in transport capacities in railways and storage capacities on ports are hindering the growth of power sector. On the power plant front, generators have started using advanced technologies which can support high grade coal and achieve higher PLF and this trend must continue.
Better revenue realisation through allowing open access in distribution would be milestone changes expected to take place. Having nuclear fuel supply agreements with major fuel supplier countries, large developing nations should focus on capitalising nuclear power. Also, Infusion of appropriate technology such as SmartGrid, automated meter reading, emphasis on peaking power and special tariff setting for such projects would go a long way towards creating the right kind of environment and investors will look at the sector with enthusiasm.
What will be your main message to the African Utility Week delegates?
The entire world is looking towards growth and development in Asia and Africa. The Indian power-sector has shown tremendous growth in the last decade. India has kept pace with the global changes/challenges. We believe that innovative and customised solutions for developing economies in the two continents would deliver the desired results rather than blindly copying the western models. Although it appears that RE and nuclear are an expensive proposition for power generation initially, it would be economical in long run. Moreover due to climate change concerns, this is attracting the world’s leading players in the sector. It has also brought tremendous investment and opportunities in India.
India has evolved as a low cost model generation and service delivery model and has shown the world how to generate competitive power even in a deficit scenario. African developing countries can also repeat the same with a long term vision and with the right kind of policies, regulations and transparency. The Indian power market model also has a good potential of replicability in African countries.
How do you justify your role as complete energy solution provider?
The company, the pioneer of electricity trading in the country, has been diligently serving the energy space for more than a decade through innovative products and services in the power market, setting up procedures, processes and business models, contributing towards framing of policies and regulations and building up alliances and partnerships leading towards structured development of a vibrant power market in the country. Structuring a contractual deal for trading of electricity requires fitting together a number of different pieces to deliver seamless, end-to-end solutions.
The company has been extensively interacting with other key players in the energy sector such as central and state governments, regulatory commissions, state electricity boards, regional power committees, distribution companies, central and state transmission utilities, independent power producers and other power utilities, investors including banks and financial institutions and other stakeholders.
As a creditable intermediary, it has been taking marketing risks, credit risks, payment risks and contractual risks and managing them well. This helped the organisation in gaining an unique insight of the energy sector- upstream and downstream. The company’s efforts towards backward and forward linkages further enhanced capacity building and development of expertise in various facets of the energy value chain – related to development of energy projects, fuel linkages, tie-up of purchase and sale of power under various contractual durations, arranging for funds and operationalising projects. The company is working closely with its customers to address the issues related to energy project development-technical, contractual, financial, legal, policy and regulation, etc.
The company set up two subsidiaries, namely PTC India Financial Services Ltd (PFS) and PTC Energy Limited (PEL). PFS has expertise in providing investment and financial solutions to energy projects, especially in the area of biomass, wind, solar, small hydro and energy efficiency. PEL on the other hand is developing an asset-based business in the energy sector and working on fuel intermediation. PTC’s consultancy services have a long list of reputed clientele and its services are increasingly being sought by the industry. Thus, PTC as a group has been quite successful in finding end-to-end solutions for energy sector projects.