What are the areas of work REC is currently focussing on?
REC’s mandate has been expanded from rural electrification to cover the entire value chain of the power sector. We are also the nodal agency for some of the government programmes including DDUGJY, Power for All and UDAY. Our strategy is to build on these trends and become a premiere financing entity which is working across the value chain having close relations which the state governments, state utilities, private sector and the renewable energy sector. For an organisation that disburses close to Rs 50,000 crores a year, it has less than 600 employees and 18 offices across the country.
Where do you visualize most of the future investments from REC being directed?
Our big investments in the days ahead would be in distribution organisations where a lot of investment is required. This would catalyse what is happening in DDUGJY. One needs to strengthen the infrastructure of the distribution system and modernise it. One big investment would come when discoms become more efficient, profitable and self-reliant. They will be able to have greater fiscal space for increased borrowing capacity. The second big area is transmission. Interstate transmission is being modernised. This requires big investments because ultimately we need transmission infrastructure to take power from generation to states. The third area is renewables – both solar, wind and the associated evacuation system. The fourth area is old thermal power systems that have outlived their utility and need to be refurbished. So, that could be a good business opportunity.
Do you have any prior experience here or would this be a new area of business REC would foray into?
We would be financing this for the first time. These are replacements for antique power stations. We also intend to look at the opportunities of coal block development because we want to work in both downstream and upstream segments. Other new area of focus is energy efficnecy devices — financing the manufacturers and give a boost to Make in India. These are certain areas where we propose to look into in the future and see how we can expand our business. We also want to upgrade the National Power Institute in Hyderabad and make it a world-class institute. We also have two subsidiaries RECTPCL and RECDPCL which are currently engaged in the core business of providing consultancy services, preparing DPRs, project monitoring etc. We are leveraging these subsidiaries to give services to state discoms. This includes consultancy services, handholding services, helping the state governments in processing, procurement, project management etc.
Is this diversification strategy stemming from the slowdown in the new thermal capacity creation? The CEA recently said no new thermal projects will come up in the next five years.
That is an inevitable direction in which everybody is moving. We already have a capacity of 310,000 Megawatt. But the peak capacity operates at 165,000 Mw. There is a mismatch there. Also, there is a lot of hydro potential that remains untapped. And if we can tap that, a lot of hydro power, which is clean and green, can be generated and that would be a perfect complement to solar. So, all these things can be harmonised in a much more effective and efficient way. But in the state sector, thermal capacity which came up in the 80s to the tune of almost 15,000-20,000 MW that is waiting to be replaced. That will be a very big business opportunity. The government is not talking about totally dispensing the thermal asset but making them much more efficient. That is the direction in which technology is also moving. Also, given the fact that there are also big scientific breakthroughs in storage capacities and electrical vehicles. These are the areas where the future lies. In the next 4-5 years, major breakthroughs are expected in storage capacities. It would disrupt everything we are talking about right now and then the role of fossil fuels would be much less. We want to position ourselves not for today’s India but for tomorrow.
Have you earmarked any new investments for the new ventures?
We are working with our clients – state governments, power utilities, discoms — and looking at their capex and opex plans. We are asking discoms to share their plans for investment requirement and financing in order to deliver quality, reliable, affordable power services for all by 2022. That would be not just financing but also value added services such as preparing a DPR. I have already visited nine states in the last 82 days and I have already signed four MoUs in four states and some more are in the pipeline. If the states need finances to provide quality power services, they will borrow from REC. This will also lead to a predictable cash flow management for us. I can be more efficient in terms of my resource mobilisation, clients and disbursement plans. And we are doing similar things with renewable energy players. I have had a roundtable discussion with them on how to tailor the financing so their needs can be met.
What is your view on the recent trends in the movement of interest rates?
Interest rates have come down because The Reserve Bank has cut rates because of inflation stability, benchmarking etc. I do not foresee the interest rates to go down in the near future. The reason is both domestic and international. The FED has increased its rates and it has also said it will further raise its rates by double if not triple. One cannot stay insulated from what happens at the Federal Reserve. However, our interest rates alone do not determine profitability. REC’s profitability is determined by how efficiently we manage our finances — borrowing cheap at the right time at the right place and lend to the right client at the right price.
Have your margins been affected due to the fall in the demand and the apparent slowdown?
If you look at our loan book, our sanctions and disbursements have had a robust growth. If not exponential, at least fairly decent growth – about 10 per cent.
Are you happy with that?
No, I am not. I would like to see my sanctions grow 20% in the next few year. I want to double the business in the next five years. So, 20% is a reasonable rate of growth. We are looking at disbursements of close to Rs 55,000 crore this year. We want to disburse about Rs 75,000 crore next year. That depends not only on project sanctions but also on project implementation. But this is doable.
What is the borrowing plan for the next financial year?
Our borrowing will be higher than the current year. This year, we got prepayments because of UDAY, we got about Rs 34,000 crores which otherwise would not have come. So, next year we will have to borrow about Rs 55,000-60,000 crores. Normally, our norm is to borrow around $1 billion from overseas and $9-10 billion domestically. That is what I expect.
How do you visualize the lending mix for renewables and thermal power portfolio going ahead?
Generation is currently around 45 per cent of the overall portfolio and Renewable is about 2-3 per cent. Similarly, the private sector accounts for 16-17 per cent and 80-83 per cent comes from is the state sector. We expect renewables to double certainly to about 4-5 per cent of my entire portfolio — entire asset of about Rs 2 lakh crore. In the medium term, it should be about 20 per cent of lending. So, next year if our disbursement is around Rs 70,000 crores, renewable should be around Rs 10-12 crore.