In a Q&A, Ravi Kailas, chairman, Mytrah Energy Ltd, some of the factors that had contributed to the recent slowdown will disappear once the ongoing regulatory interventions come into play
Mytrah Energy Limited chairman Ravi Kailas believes renewable energy industry is poised for the biggest growth in the next 5-10 years in India. In an interview with Business Standard, the company founder tells B Dasarath Reddy that some of the factors that had contributed to the recent slowdown will disappear once the ongoing regulatory interventions come into play. Excerpts:
Your vision was to build 5 Gw of renewable energy projects in India. What do you think of that goal today?
I think it will be greater than that. When we started in 2010, the total industry size was 10 Gw. At that time, the industry outlook was that we wilkl grow from 10 Gw to 30 Gw in 4-5 years. Now we’re talking about 300 or 400 Gw of capacity. We may achieve 100 Gw, which is still thrice our expectation a few years ago. So over the time our vision and ambition will grow along with the rest of the industry too.
Tell us about your journey so far.
When we began our journey, the average ownership size was less than 1 Mw. We were the first players to say we want to build big scale and create an industry out of it, because until then, almost all the players received finances on parent balance sheets. We had over 3,000 owners of that 10 Gw as it was purely an accelerated depreciation-based business.
One aim was to create scale and second was to create a different business model. We succeeded in both. We created a fairly unique business model in which we were involved in almost all aspects of the projects. We have also been unique in the sense that we are now probably one of the largest privately-owned companies, unlike most of our peers. We have no significant external shareholders, Our sponsors own almost 95 per cent of the company. It also allowed to take a lot of entrepreneurial decisions. We are still in an entrepreneurial phase. The industry still not yet resolved some basic issues.
Has profitability been a constraint to rapid growth in renewable energy?
We have almost 42 different projects now — about 17-20 wind projects and 20 solar sites. I don’t think there is a single project where we have under-performed in terms of generation and revenues. Our projects are extremely profitable. In the nine years since we started, we have not defaulted on one debt repayment, which is unique in the infrastructure industry in India. We have dealt with 30 banks and have drawn and repaid Rs 15,000 crore. The past two years have been very different but the idea that we should have a significant share of the incremental assets built still holds good.
Power availability has gone up in certain regions and some states are now counted as power surplus. Has the recent slowdown got anything to do with this changed supply-demand equation?
When you are power surplus, you have more power than you have contracted. It doesn’t mean you are surplus to the society’s needs. The actual demand for power is far greater than where we are today. It is hard for us to even imagine how much more power we require. We need another 1,000 Gw to satisfy current demand, not the future demand. I would say the industry is poised for the biggest growth ever in the next 5-10 years, more than the past 5-7 years.
Industry has slowed down for a few reasons, Those who bid low were not able to get debt. If the project viability is in question or if you have difficulties in realising your dues, then lenders say they want more cushion in terms of debt:equity ratio. Now the last few sanctions have come at 50:50. Who will put 50:50 equity if you don’t get that kind of return? Also, the lending in India has been constrained the past one year as we have an almost non-existent debt capital market.
How is the industry coping with the power dues then?
Our cycle with the discoms is they have to pay us in 35-45 days. If they pay after one year what do you do? So, industry had no recourse against its only counterparty. Not only do you not have any choice, you have no choice for 25 years (PPA period), unless the counterparty is held accountable. There are cases already where people have not been paid for 18 months. If the whole industry is not going to get paid then it has larger implications than simply thinking of those 5-10 companies. It is also a serious issue facing the banking system, because a large part of the lending book in India is energy. Receivables have become so large — almost Rs 35,000-45000 crore, now. The Central electricity regulator is acting on these and other issues.
Has this situation impacted the repayment ability of renewable energy firms?
We have been able to service the loans because renewables fortunately are high EBITDA margin — as high as 90 per cent. Which means even if you are paid a little bit late, you can repay. But you are using cash that you would have used traditionally for building new projects, to service these loans. So it has given some cushion for the industry, but it won’t protect if people remain extremely aggressive. But overall as an industry I would say it has had one of the least defaults for almost 25 years.
Will the industry be able to strike a balance between competition and viability in future auctions?
Over the past six months the prices have been trending up but this Rs 2.80-Rs 2.90 that they are achieving in auction is still not viable enough. We need at least over Rs 3 or Rs 3.20. Half the bids in the past six months have been cancelled because there were no bidders. If the policy makers don’t keep a vision beyond the lowest price of power, industry can not sustain.
States like Andhra Pradesh are seeking revision of renewable energy PPAs, citing lower prices quoted by the same developers in the auctions. How do you view this development?
I think it is fundamentally unfair. You have every right to say in future I am not going to give any more contracts but you can’t go back and change with retrospective effect. It was not only a party-to-party contract but was considered as a contract with the state based on which the projects were funded. It is a contract based on a particular moment — based on your financing conditions at that time and these are not small amounts. You are talking of Rs 40,000 crore of investment in Andhra where you are saying, ‘no, no, can we please renegotiate!’.
If this becomes the norm then the industry will suffer. We will have power cuts. We don’t have growth in thermal energy, and large-scale hydro is almost impossible in India. Renewable is just growing. A little bud has grown, you can cut it. Luckily the courts have completely ruled against it. The CERC has written very strongly saying that this makes no sense to the state also.
Everybody starts private and then goes for an IPO, but in Mytrah’s case it was the opposite. You withdrew listing on London Stock Exchange and then decided not to go for an IPO India despite toying with that option till recently. Any particular reason for this?
This is to do with market conditions, I must say. If you see the Indian market, still there is no large renewable play because of the same reasons and the same issues we were talking about. Its easier for more sofisticated private investors to take a longer term bet on the industry. It is difficult for a retail investor to understand the complexity of issues involved here. May be after this elections or after some of the other regulatory changes that have already been in the pipeline come into place, I think we will see a lot more IPOs come into place in India.
Also the other difference was that we wanted to get to a certain scale. We are grazing new capital to accelerate our growth. We don’t think we have been constrained because of lack of capital. Our growth has been constrained by our ability to execute and by what is happening in our environment and our risk mitigation conditions.
In your upcoming book titled ‘Myth of the Entrepreneur’, you argue that entrepreneurs are disproportionately rewarded by society, so it is an imperative to align their goals much more closely with societal goals. Is this why you have transferred 90 per cent of your share-holding in the company to a charity trust soon after the incorporation?
What I have done is just an individual solution. It can be achieved in other ways as well.