Things will improve on the coal supply front over the next year

CLP Power India Pvt. Ltd is the only foreign power utility with a presence in India, where it has an installed capacity of 2,600 megawatts (MW). The subsidiary of Hong-Kong based CLP Holdings Ltd entered India in 2002, around the time the spat between the now defunct Enron Corp. and Maharashtra State Electricity Board took place over the price of power sold by Enron.

The Enron episode made foreign investors wary of the Indian power sector. In an interview, Rajiv Mishra, managing director of CLP India, explained why his company still chose to remain in India and commented on its future plans and issues such as fuel supply and imported coal that are plaguing the power sector. Edited excerpts:

What made your company stay back even when other foreign companies were quitting India following the Enron episode?

We try to restrict our operations to limited geographies. But when we decide to invest, we don’t give up so easily. We decided to enter India as we saw the country facing a power deficit in the long term, which provided an opportunity for us to grow. But after we entered India, the investment climate changed and there was a lot of uncertainty in terms of regulation. However, we decided to conserve our capital and, gradually, started getting a return on our investment.

What’s the way forward for your company?

In the last eight years, our capacity has multiplied four times. By this simple logic, we should be somewhere around 11,000MW by 2020; but, as a company, we don’t set targets in terms of MW. If you set a target in terms of MW, managers strive hard to win projects or set up projects just to achieve targets, without giving too much thought to the sustainability and profitability of such investments.

What portion of your portfolio will come from traditional fuel sources and how much from renewables?

As part of our endeavour to reduce our carbon footprint, the renewable power generation capacity will be a sizeable portion of our generation portfolio; and today, we have the largest wind-power generation capacity in India. But we are not just a renewables company. For India and Asia, coal will remain the major source of power generation in the foreseeable future and so will it be for our company, too. In a bid to reduce the carbon footprint, we will deploy the latest coal-burning technologies, which will burn coal more efficiently and emit less carbon dioxide. In our Jhajjar project, we decided to deploy supercritical technology, when bid conditions did not make the deployment of supercritical technology mandatory.

Are you planning to enter transmission and distribution?

In our home market, we are a vertically integrated company; and in India, too, we would like to be a vertically integrated company and we believe there is an opportunity in the transmission sector. We made a few unsuccessful bids, but what we found was that those who outbid us had bid aggressively and we feel such aggressive pricing is not sustainable in the long term. 

Will the Presidential directive to Coal India Ltd (CIL) to sign a fuel supply agreement help power companies like you?

Yes, it is an indeed a positive step. We undertook projects like Jhajjar on the basis of fuel linkage provided to us; so the government asking CIL to sign a fuel supply agreement is an assuring sign. Yes, there will be some teething problems, but we see things will improve on the coal supply front over the next year and return to normalcy over the next two years. Meanwhile, you will have to import coal and, as everyone knows, imported coal is costlier than Indian coal and consumers will have to pay a higher price.

The developers of imported coal-based projects are demanding a tariff hike while the state-run distribution utilities, which will have to buy power from these plants, do not want a tariff hike. How do you view the situation?

It will be wrong to burden power project developers for things which are beyond their control. Nobody can afford if such assets turn bad; so both parties should sit together and resolve the deadlock. I am sure efforts are under way. But in the future, one should go for bidding based only on fixed costs and heat rate (heat generated by burning of per tonne of coal).

Are you planning a listing in India?

Our group philosophy guides us that all subsidiaries should be self-sustainable; so, yes, we will be listing in India but putting a time frame is difficult as coming out with an initial public offering (IPO) will be determined solely by the funding requirements. So as and when a major opportunity arises in the conventional which requires investment in billions of dollars, we will go for an IPO.

Source: Live Mint