Expect government to support power sector in tackling NPAs, create demand: PV Ramesh, REC
In an interview with ET Now, PV Ramesh , CMD, REC , says expecting a big upsurge in the demand push in the Budget through government’s instruments of stimulating growth like Make in India programme which is expected to generate much higher demand than witnessed in the last few years.
With Budget 2018 right around the corner, what are your expectation for the power financing sector? What kind of sops are you hoping for?
Let me put your question in a perspective. These have been transformational times for the power sector, notwithstanding the talk about NPAs. On the positive side, the biggest has been the launch of Pradhan Mantri Sahaj Bijli Har Ghar Yojana or Saubhagya, which really seeks to push the last mile to every household in this country.
We are talking about 420 lakh households getting power over a period of 420 days which is before 31st December. This is the biggest programme which will see a major transformation in the rural economy in terms of the MSME expansion, health and education. This is one of the major transformational programmes to have been launched and REC being the nodal agency, we are expecting to be a fully financed Rs 16000 crore programme. This year, it is Rs 4000 crore and the next year, we are hoping for Rs 12000 crore on the demand side.
This is making a difference in terms of the operational efficiency of the distribution companies and that should augur well in terms of the investment made under Deendayal Upadhyaya Gram Jyoti Yojana, which from the tune of Rs 18000 crore odd, would result in much bigger system strengthening across the country. This basically means those latent demands, those bottlenecks in terms of the distribution, the demand and supply dissonance would be evened out in the coming year.
We are also close to completing the electrification of 18,548 villages. Only 1272 more remain unelectrified. We hope to complete that in the next 90 days. In a sense, all this together will mean a big push on the renewable front — the emerging electrical vehicles, the charging infrastructure, the storage infrastructure, the upgradation of the existing power plants to confirm to the environmental norms etc. All this, augur very well for power sector financing and growth. The government as well as with the Reserve Bank of India are addressing the NPA issue though REC has much less exposure to this segment.
What do you expect from the government in terms of tackling the NPA problem that is plaguing the power sector?
We expect the government to support us in our endeavours. Already, the government has come up with a number of initiatives for recapitalising some of the banks which need this capital. I am sure those will be sustained and a much more coordinated action by the Reserve Bank of India has set in place a statutory mechanism of the Joint Lenders Forum and the other such institutional arrangements for a close coordination in addressing the NPA problems
What is it that the government can do in order to step up investment when it comes to power generation capacity? Are you expecting any allocation to come by in the Budget?
No, power generation essentially is a market driven mechanism. Our financing is independent of the government financing. Government invests where it is most needed, that is in the transmission and distribution segment in a much bigger way. Several state governments and also central PSUs like NTPC BSE -0.09 %, NHPC continue to make investment in terms of both in stabilising, expanding and in conforming with the new environmental norms.
Some states are taking up new projects but their big push is on the renewable segment with solar, wind, waste to energy, biomass, small hydro and those areas continuing to receive the government support in a substantial manner — both through policy drivers and also working on both the policies and priorities.
Overall, on the generation side, we have about 330 gigawatts (GW) of installed capacity. The goal is to reach 540 GW in the next two years of which 175 is to come from the renewables. So that is pretty much– those plans are pretty much on track. We are expecting a big upsurge in the demand push and I am sure the government budget through its instruments of stimulating growth, Make in India programme would generate much higher demand than what we have witnessed in the last few years. The big push is also in the new frontier technologies.
There are reports that are suggesting that you are now looking at some international expansion as well. What geographies are you looking at? Anything that you may have specifically in terms of an expansion plan when it comes to your international operations?
It is already known that we are at an advanced stage in terms of financing hydro projects in the neighbouring countries — Bhutan and Nepal. We are all geared up for that and we are exploring business opportunities in Africa and West Asia where there is a huge demand for services across the value chain of the power spectrum. We have subsidiaries which are quite active in this segment. The T&D companies — REC PDCL and REC TPCL and our joint venture company with NTPC and PFC which is Energy Efficiency Services Ltd (EESL) which is well known for the major upswing in energy efficiency in this country and which is now active in the frontier technologies like electrical vehicles charging infrastructure.
All this actually is an example for several other developing countries which really can follow our model and we have the expertise, experience to offer.
What will happen to your cost of capital at a time when yields are going higher? Earlier, REC used to raise a lot of money via the tax-free bonds. That option is also not on right now. The rate at which you borrowed also will incrementally go higher. Can you maintain the NIMs?
I see no reason why we should not. We have sovereign rating both in the domestic and international markets. In the past one year, we have raised about $1.2 billion loan in the overseas markets. We are the first Indian corporate to raise a 10-year green bond and trade it on the London Stock Exchange. We are quite aggressive in both domestic markets. We raise about Rs 50,000 crore this year and we have been raising at extremely competitive rates.
The bond yields are hardening. We are aware of that but that obviously means higher cost of capital for our clients who have had a much easier run. Consistently, we have maintained NIMs above 4 and yields above 3.
In fact, our yields were much closer to 4 mark earlier but as you know last year had been a year of softening so notwithstanding all that. I think we will continue to maintain a momentum. We have plans to raise about $2 billion in the overseas markets this year. We are proposing to raise a substantial amount in the domestic market and we have always tried to keep the costs low and this is reflected in our profitability.
My next question to you is not directly connected with REC but connected with the power sector. A couple of years ago, we would always read numbers which would say that in India there is a shortage of power but if I look at the latest data, power rates have come down. I have been told that there is surplus power capacity. The way alternate energy rates are coming down, it just tells you that suddenly there is a drop in demand. What is the reality?
Let me put it in a perspective. There is no drop in demand. Demand continues to grow. It has grown around on a CAGR of about 7% to 8% and if at all, there is some diminishment in terms of expectations. We were expecting double digit growth in terms of the power demand but that did not happen. Essentially this is also because of the energy efficiency push. Overall energy efficiency devices alone contributed to about 1.2% to 1.3% reduction in terms of overall demand growth. So, there is no fall in demand though it has not grown at the expected double digit rate.
Second, policies of the government in terms of more effective, more efficient governance and unburdening the discoms through UDAY in terms of their own ability, means creation of a greater fiscal space. They can make capital investments where it is most required.
The third is the renewable energy push in a big way which again is contributing to greater availability of power in this country.
The overall installed capacity today is about 3,30,000 megawatts which is a substantial capacity. The demand is actually picking up. In last one month alone, there has been a big upsurge in demand and we expect this to be sustained in the coming days. The talk about mismatch between supply and demand or oversupply will be a thing of the past soon.
You have spoken about your expansion plans and entering the foreign markets. Any sort of fund raising plans in the pipeline?
We have always raised resources through various instruments both in the domestic and in the international market. We have a policy in place. We have a strategic approach to managing the asset liability system. So we will continue to raise resources. We have raised about $1.2 billion in the overseas market and this year we are likely to raise about Rs 50,000 crore in the domestic market. Next year, we are expecting a loan book growth of 15% to 20% or maybe even higher. There is robust demand especially in the state sector and also in the CPSU joint venture sector and the private sector players. We will continue to meet the needs of the country’s development in the power sector which is the main engine of growth.