November 7, 2016
I have given states an offer they ca’t refuse
Piyush Goyal, Union minister of state for coal, power and renewable energy, talks to Business Standard on theUjjwal Discom Assurance Yojana (UDAY) scheme, saying that with the states taking on a part of the debt, they will be fiscally responsible to pay it back. Edited excerpts:
Parliament was stalled in the last session and it is feared that the same will happen in the next session. How is the government planning to push reforms?
I hope this time Parliament functions. We will give a long rope to the Opposition and also reach out to them. Even if it does’t happen, I think it’s time we start looking at ways and means to work without legislative changes. We had five out of six ordinances cleared in Parliament. The only exception was the land ordinance.
We have not been able to meet our disinvestment target because Parliament was stalled and we were unable to push the amendments to the Prevention of Corruption Act(PCA). It was needed so that bona fide actions of officials do not come under the PCA so that bold changes can be made, particularly strategic sales. Mala fide actions, of course, need to be taken to the cleaners.
But you can enact an ordinance for the PCA amendment too.
Ordinances do not provide confidence to investors and bureaucrats to take bold decisions.
We have residual stakes in Balco and Hindustan Zinc. A bold decision could have been taken a year ago and we would have gathered a good premium even over the market price. Today, we wo’t get anything and the market will also crash. We could have got good value except for this clause in the PCA since no one wants to take a decision. To be taken to the Cabinet, the decision needs to be signed by 10 bureaucrats.
The amount of information out now is of the highest level. For the UDAY scheme, there is a 72-page presentation on the website. Our whole approach is: do’t wait for the RTI, and put all information in the public domain.
What is the status on coal blocks where the government alleged collusion?
The level of transparency in coal bidding is unprecedented in the history of India. But collusion in bids can be proved only through investigation and that was a choice before me. I would have to hand over the file to the CBI then. But the data was so stark that it could not be ignored. We have not cancelled the bidding; we have annulled the process.
In the UDAY scheme, have’t you put a lot of onus on the state governments?
UDAY has evolved out of discussions in about 70-80 meetings with all the stakeholders.
The big picture of UDAY is energy security; within that, I have to achieve 24×7 power supply. All states are on board. It is optional for them. But if you do’t come on board, your people will suffer and they will tell you to come on board. For the future, there are two things: banks have decided to stop lending for distribution companies’ losses, so states will have to take them on their Budgets or guarantee and raise money. In the future, to bring in budgetary discipline, they have to compulsorily provide a large part of discoms’ future losses in their state Budgets. NTPC will alone save Rs 8,570 crore.
Who will buy these bonds?
I have had extensive discussions with insurance companies, pension companies, and mutual funds. There is more than enough appetite for these bonds but we have kept a backstop arrangement that banks will take them up and sell them at a profit.
But banks will take a hit because their profits will be hurt.
Banks are all delighted – their capital adequacy problem and potential stress is solved. The mirage may be they are getting 12 per cent but when you have to provide additional distressed asset stress or capital adequacy, the amount they lose out is much more. When you talk of banks not passing on the interest benefit, the reason is stress, impairment, and capital adequacy. So, this is completely bottoms-up. Not a single stakeholder has objected to what I’ve done. Even Uttar Pradesh has wholeheartedly welcomed it.
If the states do’t meet the efficiency parameters, how will you ensure 24×7 power?
It is optional for the states to take part in UDAY but they do’t have any reason not to. To borrow a line from the movie The Godfather, “I have given them an offer they cannot refuse.” With states taking on a part of the debt, they will be fiscally responsible to pay it back. I have’t relaxed fiscal responsibility, so the states will have to be more prudent. If they do’t take this on, they will have to pay it as a subsidy. It will also involve a lot of depoliticisation in the power sector, apart from tariff reforms.
Potential savings have been mentioned in UDAY. Takeover of 75 per cent of the debt raises savings by Rs 26,000 crore. This will reduce the loss of some discoms, while allowing others to buy power at cheaper rates. This will help in reducing Rs 250,000 crore potential stress.
How can power costs come down?
Supply of domestic coal is being increased – 50 MT in the current year to 65 MT the next. Through swapping alone, the cost of power can be reduced by around Rs 36,000 crore. Plant load factor will be increased in efficient plants while inefficient ones will be downgraded, the savings from which will go to consumers. Out of the Rs 60,000-crore loss of last year, the biggest chunk was interest. Now, overall interest rates are set to fall, resulting in overall savings of Rs 17,000 crore.
Your three ministries are the most investment intensive. However, currently only seven mines are running, investment in transmission is not coming in and investment in renewables is coming from only a few players. Where do all these ministries stand with respect to investment?
Transmission bids worth an estimated Rs 30,000 crore have been taken out with around Rs 70,000 crore waiting to be taken out in the next six months. There is a lot of interest in it. The last 18 months have been the structural improvement period, which has seen the entire sector becoming reinvigorated. We are reforming the discoms, which will attract higher investments.
Coal is underinvested because of obvious factors of oversupply and low plant load factor in power units. UDAY is important for the sector to gain confidence. Only seven mines were operational since the others had issues of mining infrastructure and valuation.
As regards renewables, bidding can take place only after the transmission lines from solar parks are completed. Although around 25 such parks are currently under construction, the energy evacuation infrastructure is still being created. Also, there were more than 20 bidders who were bidding at sub-Rs 5 levels and some willing to go below Rs 4.80.
But is the solar tariff viable?
The bidders have said it is absolutely viable. The absence of any future raw material cost is significant. The only variable cost per unit of power generated is 40 paise. Solar tariff in Nevada is Rs 2.60 and in Abu Dhabi, Rs 3.30. You had said low plant load is good for the economy. It’s not as if power demand is falling. It’s that generation has outpaced demand. Last year, 22,000 Mw were added, which was a record. An additional 10,000-11,000 Mw were added this year. The electricity sector grows five to seven per cent on average, annually. The plant load came down because of this. I’m happy the country has surplus power now. This ensures investor confidence.
Source Link– http://www.business-standard.com/article/economy-policy/i-have-given-states-an-offer-they-can-t-refuse-piyush-goyal-115111800047_1.html#.