Power Grid was under pressure on bourses last week as the street factored in lower return on equity (RoE) after the Central Electricity Regulatory Commission (CERC) proposed to reduce regulated RoE for renewables. Speaking to CNBC-TV18, IS Jha, CMD, Power Grid said the proposal by CERC is for renewables only and it is not fair to compare RoE reduction for renewables to transmission. He said the company won’t be significantly affected by the new CERC proposal. Projects worth Rs 1.30 lakh crore are to be commissioned over the next four years and the company will be able to sustain its capex and capitalisation at current levels, he said. He further added the payment cycle has improved in many states post demonetisation. Below is the verbatim transcript of IS Jha’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Anuj: What are your thoughts on the CERC move? Will it bring in some more uncertainty?
A: The policy had come for renewable energy. Earlier the pre-tax was 20 percent RoE now they have proposed to have post tax 14 percent. But it is not fair to compare it with transmission because there are three things you have to consider. First is, hardly any project goes into the renewal. Secondly, in the last five years, if you see the trend in the competitive bidding in the renewable energy, price has come down from Rs 7 per unit to Rs 3.30. Third thing which is very important is the gestation period is one year only. Even if you consider post tax RoE of 14 percent in renewable energy, IRR will be 11-13 percent depending on the cost. But if you take the transmission system, if you consider the present post tax RoE of 15.5 percent and gestation period is 30-36 months that is two and a half years to three years, IRR will be 12-13 percent. Second thing if you see the tariff bidding of the transmission project, their tariff is moving around the same benchmark of the CERC. That is why I don’t think that it is going to affect so much. Both are different models altogether.
Latha: Let us talk capex now, your capital increase in FY17 was Rs 28,000-30,000 crore, is that what you will end the year with? Can you give us an idea for FY18?
A: As I mentioned earlier that our work, which is going on is costing around Rs 1,39,000-1,40,000 crore. These all things has to be commissioned in next four years. That is our capitalisation will be in the same range in every year.
Latha: It has to be higher. You have to do better than Rs 30,000?
A: It may happen in the last year when the project is due for commissioning because the project Raigarh-Pugalur is just awarded, it will come in the fourth year. At that time it may go high.
Sonia: When we spoke to you earlier you had indicated that you are expecting a 30 percent growth in your revenues by the end of this fiscal. You have already done about 25 percent in the last quarter as well. But can you tell us with a lot of this commissioning of new lines coming up over the next couple of quarters, for FY18 what kind of projections would you have in revenue growth?
A: I cannot tell you exact in revenue terms but I can mention about the projects that are coming up. One of the biggest project is Champa-Kurukshetra costing around Rs 10,000-12,000 crore. Rs 6,000 crore is coming up in this quarter only. Balance will come in the next year. Next is the Raipur-Wardha, Wardha-Aurangabad. Next is the Wardha-Hyderabad. These are big projects. There are number of small projects. All are coming up. From next year onwards, green corridor will start commissioning part-to-part.
Latha: Are there any major north-south corridor grid connections that you will be opening up?
A: If you see the geography, the power requirement is north and south and that is why the basic focus is western region or eastern region to northern part side, western or northern region, or western or eastern region to southern part. Recently, the west-south corridor we have a Raigarh-Pugalur land and Pugalur to Kochi land, total cost is around Rs 20,000 crore. Most of the packages have been awarded. These all are likely to come in 2019-2020.
Sonia: Can you give us an update on what the latest is with respect to the Ujwal DISCOM Assurance Yojana (UDAY) distribution companies (DISCOM) reforms and the kind of positive impact that it has had on a company like yours so far because we understand that the payment cycles have reduced from certain states and the pace of payments has also increased from states like Rajasthan etc but what is your own feedback on the same?
A: Recently, I am seeing that the payment cycle has reduced but Rajasthan is making the payment in time. Same with the Uttar Pradesh (UP), Bihar. All are getting advantages. UDAY is now showing the impact at least financially. Some states are certainly getting benefited. They are coming back to the good financial health as far as recovery of the outstanding is concerned, it is going on very well. We are very much satisfied.
Latha: So your receivables have gone down?
A: Yes, certainly. It is now less than 40 days. As per the CERC regulation, they are supposed to pay in 60 days. We are getting it in less than 60 days. Latha: Will your margins improve with interest cost falling?
A: In our business, generally interest is passed through to customers. We do not take that money.