‘High losses of discoms a question mark on viability of capacity addition in India’

The change in law in Indonesia led to a hike in imported coal tariffs of more than 150 per cent, which has affected all imported coal-based projects.

Written by Siddhartha Gupta | Updated: December 16, 2014 2:22 am

Amid continuing tariff uncertainty over its UMPP at Mundra, Tata Power CEO and MD Anil Sardana, in an email interview with Siddhartha Gupta, said that the company is awaiting some sort of a guarantee on fuel supply and a mechanism to offset the impact of fuel price fluctuation. Excerpts:

What is the future outlook for the Mundra UMPP? 

We will do our utmost to continue buying coal and honour our commitment but we need some form of a guarantee for fuel supply as well as a mechanism to offset the impact of fuel price fluctuation, in case the situation demands it. We are awaiting a quick resolution of the tariff issue.

The change in law in Indonesia led to a hike in imported coal tariffs of more than 150 per cent, which has affected all imported coal-based projects. The problem got compounded as Australia and African countries also changed their export norms.

What is your view on the coal ordinance and the upcoming auctions?

In terms of bidding, we are waiting for finalised rules and guidelines to have better clarity. However, the speed at which the ordinance came in and the depth in which the government has worked on the same is amazing. The government wants to ensure that the end power unit is ready to consume whatever coal is generated from these awarded mines.

What reforms, according to you, are urgently needed in the distribution sector?

The crux of the problem of power sector lies in slow to nil reforms in distribution. There is no good reason for government to be in the business of distribution but the state is unable to let go of the sector due to involvement of vested elements. There is lack of political will in pursuing reforms with earnestness and whatever is being done today is more to keep the interests of vested elements alive.

Power distribution needs a combination of tariff increases to reflect the increasing cost of fuels and depreciating rupee, as also competition & open access. The distribution segment caters to 200 million consumers with a connected load of 400 GW, comprising one of the largest customer bases in the world.

However, high financial losses of the discoms are almost becoming a question mark for viability of generation capacity addition in India, in terms of their credit worthiness to pay for power. Also, creation of regulatory assets in the books of discoms has dried up their ability to source incremental bulk power. These need to be liquidated by way of tax free bonds, so that customer’s cost of paying for regulatory tariffs can be optimised.

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