Cost of coal must come down

This will reduce discoms’ purchase costs

PRAVEER SINHA, CEO and MD, TPDDL

Tata Power Delhi Distribution (TPDDL) is one of the private power distribution companies serving Delhi. It is a joint venture between Tata Power and the Delhi Government and supplies electricity to 7 million people in North and North-West Delhi. Business Line spoke with Praveer Sinha, CEO and MD, TPDDL, on issues such as UDAY, the Centre’s scheme for financial restructuring of state power distribution utilities and on ways of bringing down the cost of electricity.

Do you think the results of UDAY (Ujwal DISCOM Assurance Yojana) have begun impacting the power sector? What are the benefitsthat private power distribution utilities (discoms) can derive if the scheme is extended to them too?

UDAY is a very innovative scheme which primarily provides an incentive to the State discoms to improve their operations. The main feature is that their debt has been taken over by their respective state governments which in turn have issued UDAY bonds. To that extent, the discoms’ financing cost has come down.

They were earlier spending 12-15 per cent on debt financing which has now come down to 8 -10 per cent. It was expected that this benefit would enable the discoms to purchase more power.

Unfortunately, that has not happened because many State discom have only recently, in the last six months gone through the UDAY process.

This summer too the peak power supply was less than 150 million units, though people’s actual power demand must have been much higher.

Hence, my feeling is that the benefit that should have come by way of more power being purchased by the state discoms to meet the requirement of consumers has not happened fully.

Nearly 40,000 MW of generation capacity continues to remain stranded and the average plant load factor on an All India basis continues at less than 60 per cent. So, this demonstrates that demand has not gone up at the expected pace.

In the case of private discoms, instead of the respective states governments, the banks or entities such as PFC and REC can come out with bond issues.

Suppose a discom has an existing loan of ₹1000 crore at 15 per cent interest rate.

It can now take the same loan from the bond-issuing entity at 8 -10 per cent,.

This amount can be put in an escrow account and be used for repaying the original loan/ bond amount.

So, the cost of capital will go down drastically and some of that benefit can be passed on to consumers by way of lower tariffs.

NTPC’s generation costs eased in the June 2016 quarter. Have you benefited from this in the form of lower cost of power purchases?

In the last six months, there have been three increases in the cost of coal. The first is the increase in the Clean Environment Cess from ₹200 to ₹400 a tonne.

The second has been the hike in prices by Coal India by 9-19 per cent (for coal grades G6-G13) and the third has been the increase in railway freight charges.

So, the tariff (charged by the generating company to the distribution utility) has gone up by about 10 per cent on an average. The cost of power from the plants from which NTPC is supplying to us has actually gone up as per the invoices received by us in June and July 2016 vis-a-vis the invoices for January/February 2016. So, the cumulative impact on the cost of coal will get reflected in higher tariffs in the coming year.

Power purchase cost constitutes the single biggest expense item for a discom. What according to you are some of the best ways of controlling this cost?

The main source of power supply in India continues to be coal-based. So, the cost of coal has to come down. Coal India being a monopolistic supplier fixes the prices of coal on an arbitrary basis.

There is no regulator for coal while there is a regulator for power. So, there is need for some control. Secondly, there is lot of grade slippages in the quality of coal that is being supplied. Power companies are being billed for a higher quality of coal than what is being supplied.

So, until and unless grade slippages are sorted out and there is a third party to check coal quality, both at the loading end and unloading end, this challenge will continue.

From what I understand, third party sampling is being done at the coal loading end but not at the receiving (unloading) end.

Earlier grade slippages used to be in the range of 7-8 grades (each grade slippage implies a reduction of 300 kilo calories). It has come down to 5 grade slippages.

So, if the way in which coal is being supplied from the mine to the power plant is corrected, I think there can be tariff reduction by nearly 10-15 per cent. Also, there are a large number of old power plants — 30,000 MW in the state sector and 13000 MW in the central sector. They consume huge amounts of coal. So, if they are shut down and instead the high efficiency plants are allowed to operate, then that too will lead to reduction in tariff.

The discoms in Eastern and North- Eastern India are the worst performers. Why is it so?

Some of the States in Eastern and North-Eastern India have not been able to improve their collection and billing efficiency and also reduce their AT&C (aggregate technical and commercial) losses because their network is in a very dilapidated condition, there have been no technology interventions and there are issues relating to capacity building and training of manpower.

There have also been issues of general lack of governance in many of these discoms.

Apart from that, there are problems of tariff revision. Many States do not revise tariffs every year and even if revisions take place, they are not cost reflective.

Have the Delhi discoms begun compensating consumers for unscheduled power cuts as provided under the amendment to the Delhi Electricity Supply Code and Performance Standards Regulations?

The Delhi High Court in its order has said that the basis on which this order was issued was not legally correct and therefore it is being re-examined by the government and the Delhi Electricity Regulatory Commission. So, till such time nothing can be done.