RPGCOM :: January 2010

Interview: Sanjiv Goenka
‘We are keen on hydel projects’

Sanjiv Goenka, Vice-Chairman, RPG Enterprises, speaks on the growth plans for the power sector and CESC. The planned foray into the hydroelectric power generation sector and the power sector in general in the 12th Plan period have attracted considerable media attention, being featured in all leading newspapers and television channels like CNBC-TV18. Excerpts from his interview to RPGCom:

Q: We understand there is a new project to kickstart the foray into the hydel power sector. Can you walk us through the process and the financials? How different is a hydel power project from existing thermal ones?
A: Hydel is very different from thermal and yes, we have our first project to work on. It is in Himachal Pradesh, at a location called Lara-Sumta. It has the potential to generate upto 140 megawatt (MW) and the project site is promising. It is not a very big project because it is our first foray into hydel. As for margins, hydel does look attractive, more so given the volatility and outlook in fuel prices. We are very optimistic about this whole area. At Lara- Sumta, the four -season environmental study is on, and we are also looking for hydel projects on sale or on offer.

Q: When will this project come on stream? What does the future hold?
A: There are environmental challenges and challenges in the implementation space given the location. We are developing critical infrastructure in a location that has seen limited investments in this space. We are looking at three-four hydel proposals. Thanks to our internal accruals, and room to tap both equity and debt options, funds are not a problem.

Q: Is the cost per MW for hydel power comparable to thermal power per MW. Do the economics work out for more hydel power projects? What internal rate of return (IRR) would you be generating from hydel power?
A: The costs in a thermal power project is now coming closer to Rs 5 crore per MW, not Rs 4 crore as was the case earlier, owing to project delays and other costs. Hydel costs somewhere between Rs 6 crore and Rs 7 crore per mw. The variable or operational cost for hydel is almost negligible. So the fixed cost is higher while the variable cost is much much lower. When you are looking at tariffs, it is not much different from thermal. I would even venture to say that going forward, hydel becomes a little more attractive owing to uncertain thermal fuel pricing and supply issues. Once we get our job done, hydel could actually become marginally more attractive than thermal.

Q: The overall fuel supply issue for thermal units – how serious are the concerns about coal availability?
A: There two major constraints that all thermal power projects are facing and will face in the years ahead and these are fuel and land. I feel only those projects which have confirmed fuel linkages and land are the ones which will get off the ground within a reasonable time frame. CESC has been a little conservative in announcing projects because we are sensitive to these issues and appreciate the ground realities. CESC as a policy has only announced projects where we have got at least one of the two tied up. Hopefully, the other is getting tied up shortly. In all the projects where neither land nor fuel has been tied up, there does exist a certain element of doubt.

Q: What about the three power project proposals in Bihar, Orissa and Jharkhand?
A: The good news is, the Orissa project will go into the next standing linkage committee for coal for 12th plan by March. We are well positioned to get the linkage. Land is almost all acquired already. As far as Bihar is concerned, we have made applications. Land acquisition is now happening. As far as Jharkhand is concerned, we have got the coal mine and but there are some issues with land. We are considering just shifting the location marginally so that we can get land easier.

Q: Can you give us some idea of what kind of compound annual growth rate (CAGR) you are looking at in terms of growth, in terms of revenues, volume of power output and bottomline
growth for FY11 and FY12, at CESC?
A: BudgeBudge is effectively going onstream now with 250MW capacity, adding generation by about 25 per cent from 1,000MW to 1,250MW. For the other generation projects, we are looking at about three years from now before they go onstream. Chandrapur and Haldia will
go onstream only three years from now because we will get to financial closure now. As far as Orissa and Jharkhand are concerned, we are looking at 42 months from now.

Q: To sum up, what is the overall outlook?
A: In all, CESC plans to add 5000MW of thermal generating capacity entailing investment of about Rs. 20,000 crore. In parallel, CESC is pursuing opportunities in the power distribution business in the country. It is looking at opportunities for inorganic growth as well. Taking the
proposed outlay in the 12th Plan period in the hydel power sector, we should be investing around Rs 35,000 crore in power projects. Much of it will fall into place by 2013-14.