Essar Power plans to raise Rs 4,600 crore debt to complete its two under-construction projects in Jharkhand and Odisha. The company is already saddled with a debt load of Rs 20,000 crore with lenders delaying funds for the Tori project and feels that the interest rate on several stranded projects should be brought down. Apart from focusing on operational efficiency to service debt, the company 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 on credit climate for power projects, plans on coal imports and the revival of idle gas-based power projects.
Essar Power has commissioned 80 per cent of its planned capacity of 6100 megawatts (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 under-construction projects- a 1200 MW plant in Tori, Jharkhand, and a 60 MW plant in Paradeep, Odisha. We require Rs 5,000 crore for completion of these two projects. We have already infused a significant portion of the equity required for the completion of these projects and hence, approximately Rs 4,600 crore shall be raised in the form of balance debt out of Rs 5,000 crore required for completing these projects. 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, further tie-ups and disbursement of funds would commence for the completion of the project.
Thermal power producers are finding it tough to secure long-term PPAs and power offtake arrangement. 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 discoms through PPAs. Tying up power offtake has been a challenge in the sector since state discoms 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 discoms.
Is the present scenario favourable for independent power producers to get credit from banks?
It is not just the power sector, but also the infrastructure sector as a whole that is facing funding issues. The moot point is how to ensure loans do not become bad debt and not that if 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 overall 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 on base interest rates (nine per cent) instead of what they are being charged currently (13-14 per cent).
What is Essar Power's debt load as of now and what is your roadmap for paying debt?
Essar Power has a debt of Rs 20,000 crore. The debt should be considered in conjunction with the fact that the business has also seen an infusion of Rs 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 FY 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 (CIL). 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 fiscals, 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 to relocate these projects to Indonesia?
Currently, we are not contemplating to relocate our gas-based projects. Right now, gas prices have come down and we are trying to restart the plant again.
The government has extended several sops for mega power projects. How will this step help Essar Power?
The recent notification on mega power project status is a relief for plants that had obtained provisional mega 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 discoms and hence, are confident of achieving the 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 the previous financial year and what is the projected import estimate for 2017-18? Is it still viable to run your units on imported coal supplies?
In the previouys financial yeqar, we have imported 2.5-3 million tonnes of coal for our Salaya plant with a gross calorific value (GCV) of 5000 Kcal/Kg and in FY 2017-18 the number should be in the similar range, though quantity may vary a bit depending on the GCV of coal procured. The tariff for this power plant is fixed and therefore earnings are prone to fluctuation in imported coal prices. Since the coal prices have increased in recent past, the earnings are impacted. However, if and when the imported coal prices will come down, the earning on this power plant shall improve.
Does Essar Power have any plan to foray into solar power business when the bid prices are touching historic lows?
As mentioned, we are currently focussed on completing our under-construction plants and optimising operations at our existing plants. Foraying into solar will purely be an opportunity-based strategic call based on project-wise economic viability.