K.V.B.Reddy_Approval Process_ProjectsMonitor K.V.B. Reddy, Executive Director & COO, Essar Power Ltd

Essar Power, a subsidiary of Essar Energy, is one of India’s leading private power producers a total installed generation capacity exceeding 3 GW. In this exclusive interaction, K.V.B. Reddy takes us through the company’s operations and its future plans of attaining 6.7 GW of power capacity by 2014. Reddy also discusses remedial measures to improve private participation in the power sector. Interview by Venugopal Pillai.

To start with, tell us about the current status of two of your power plants scheduled to commission this year – Mahan-I and Vadinar-P2.
The coal-fired Vadinar P2 plant, with 510 MW capacity, providing power and process steam to Essar Oil’s Vadinar refinery, was fully commissioned in November 2012. The plant has significantly lowered generation costs and improved refinery margins of Essar Oil.

Mahan I, Essar Power’s eighth operational power plant, is a 1,200-MW (2×600 MW) captive coal-fired pit-head power plant located in Singrauli district in Madhya Pradesh. In December 2012, the Unit I of 600 MW was synchronized with the transmission grid and Unit II (600 MW) is expected to be commissioned by the first quarter of next fiscal. This 600 MW capacity is the largestsize single unit commissioned in Madhya Pradesh.

Essar Hazira_ProjectsMonitorHow is the 1,200-MW Salaya-I commissioned this year faring in terms of regular operations? Do you have expansion plants at Salaya?
Salaya Power Plant, located near Essar Oil’s refinery complex at Vadinar, is an imported coalfueled thermal power plant with two 600-MW generation units. Coal for the plant will be sourced from Essar Energy’s captive coal mines in Indonesia, which are under development. In the interim, the coal is imported from other sources.

Full commercial operations of Salaya-I began in June 2012. The operations of Salaya I has been stabilised with satisfactory output. Bulk of the power produced by the Salaya-I plant is being sold to the Gujarat state electricity utility, Gujarat Urja Vikas Nigam Ltd, under a longterm contract.

Salaya II & III, with a total capacity of 1,920 MW, are currently under implementation. These capacities are expected to be commissioned by March 2014.

Salaya II is a 1,320-MW supercritical coal-fired plant comprising two 660-MW generating units while Salaya III is a 600-MW circulating fluidised bed combustion technology plant comprising four units of 150 MW.

Please discuss your plans of attaining, as we understand, over 6,500 MW of power generation capacity by 2014.
As you are aware, Essar Power is one of India’s largest private power producers with a 15-year operating track record. We currently have seven operational power plants in India and one in Algoma, Canada, with a total installed generation capacity of 3,910 MW. This capacity is increasing to 6,700 MW by March 2014.

We learn that Essar Power is aggressively pursuing renewable energy opportunities. We also understand that an agreement has been reached with wind turbine maker RePower. Please elaborate.
Currently almost our entire portfolio of power plants fossil fuel fired. Our view is that for rapid development of our country, we need cheap power. Currently, only thermal power — and that too pit head (for domestic coal) and coastal plants (for imported coal) — are ideal for that objective. Coal is still the cheapest form of power. India has vast coal resources and hence it needs to exploit its resources to provide affordable power for all. As of now, other energy forms like solar, wind, and hydropower still have technical and geological challenges.

Essar Energy currently is focused on implementing the above-mentioned projects. We continue to evaluate opportunities in the renewable energy space and currently have only a small portfolio of renewable capacity in the solar energy space.

We perceive that private power projects, after playing a very important role in the 11th Plan, are now seen slowing down and adversely affected by a variety of reasons like clearances, coal linkages etc. What is your overall view?
You are right. If India is to meet its planned power generation targets, private sector has to play a major role and today, owning to various policy-level issues, private players have slowed down their investments. In the medium to long term, this will have an adverse impact on the country’s growth.

Currently, the concern is both on the supply and the demand side. On the supply side, poor availability of fuel (both gas and coal), transmission capacity bottlenecks, and slow pace of obtaining statutory approvals for land acquisition are key factors affecting capacity creation. Several projects at the development stage are being deferred/kept on hold due to the above mentioned reasons.

Significant rise in the interest rates over the last few years has affected fund raising. Availability of plentiful debt capital at reasonable cost is critical for any business, particularly infrastructure, as debt typically finances 75 per cent of the project cost. The current state of capital markets is also not conducive to raising equity, which has made funding challenging.

On the demand side, absences of tariff reforms have led to high losses and financial stress for distribution companies, which are the main bulk procurers of power. Poor cash flows of state-owned distribution companies are affecting their ability to off-take power, which is creating additional uncertainty for capacity creation.

While the government’s target and the actual capacity addition achieved in the past year is laudable, the challenges faced by the industry will make the target achievement much more difficult. However, we remain optimistic that the government is cognizant of these factors and is taking active steps to address them.

Essar Energy_ProjectsMonitorIf you were to make three recommendations to the government for reviving and expediting private sector investment in the power (generation) sector, what would they be?
I think our three requests would be quicker approvals, quicker approvals, and third and the most important, quicker approvals! Most power projects are stuck or delayed due to inordinate delays in obtaining the required permission. Hence it would be a shot in the arm for the industry if government speeds up its approval process.

Essar Power, as we understand, has placed orders on Chinese main plant equipment for some of its power projects. What is your overall view on the sometimes-controversial issue of Chinese BTG equipment in Indian power plants?
We have placed equipment orders with Chinese firm Harbin Power, one of China’s largest power plant equipment manufacturers, for BTG packages and other project materials. We have a good working experience with them and have found them satisfactory.

What has been Essar’s level of interest in the Centre’s ultra mega power project series?
We will consider bidding for any project or putting up any new project only after fuel security is ensured. This has been our policy even for the capacity we are putting up.

PROJECTS UNDER IMPLEMENTATION
Plant State

Capacity
(MW)

Mahan I (Unit II)
MP
600
Hazira II
Gujarat
270
Paradip
Odisha
120
Tori I
Jharkhand
1,200
Tori II
Jharkhand
600
Salaya II
Gujarat
1,320
Salaya III
Gujarat
600
Navabharat I
Odisha
1,050

Tell us about Essar Power’s stance in acquiring coal assets overseas. In view of its significant power generation capacity coming up, how important would overseas coal mines be in terms of fuel security?
All our plants are based on assured fuel linkages, since that’s the only way we can be assured of long term raw material security. Our Salaya Plant is based on coal imported from our own mine in Indonesia. Mahan Plant will be fed coal from the linked Mahan Coal block, Tori Plant from Chakla and Ashok Karkata mines, and Navabharat Plant from Rampia mines. Owning the complete value chain is very important!

We are always looking for opportunities to meet our long term fuel security. Acquisition of new mines will also depend on development of future projects which are currently on hold due to regulatory hurdles in India.

Having established a solid base as an IPP, what is your take on power transmission and distribution where tremendous opportunities exist?
We see a lot of opportunity in the power distribution space, since we believe that the end consumer can benefit a lot if provided with quality service. We have been evaluating opportunities being offered by the states under the distribution franchisee model.

We perceive that Essar Power has been able to producer power at relatively lower costs. While we feel it could be due to efficient technology and also due to strong synergies with group companies, could you elaborate?
We believe in owning the entire the value chain for maximising value and lowering cost. For instance, our plants are designed and commissioned by our sister EPC concern – Essar Projects. The coal is owned by us hence we are immune to any fluctuation of prices. The coal is shipped through another sister concern – Essar Shipping. Essar Ports have set up a dedicated coal handling port for us at Salaya. Then we have long-term PPA, committing part of our capacity to Essar Steel and Essar Oil, providing long term revenue visibility. All this makes us very competitive in terms of overall costing.

Can you take us through your vision for Essar Power over the next five years, mainly in terms of adding more aspects of the power value chain to your portfolio?
Essar Power plans to expand the current generation capacity of 3,910 MW to 6,700 MW by March 2014. Currently, some of our projects are progressing as per meeting regulatory milestones. Once clarity on the regulatory front emerges, we will be able to draw our future plans.


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