With the "Electrifying Start" achieved in the implementation of Ultra Mega Power Projects, it is clear that the present policy initiatives has met with more than anticipated response. This is a land mark event in the country and will clearly be remembered for times to come.
Two significant changes have been heralded in this start. One; it is now clear that there is an enormous appetite for investments in the Power Generation Segment. Given the mind set of some in the government who still complain of lack of response of the Private sector in participating in the addition of more than 120,000 MW of Power Generation, the current response of Indian Companies with the support of the international equipment manufacturers and investment agencies, should be satisfying.
Power sector is unique with its own typical issues. It cannot be compared to Automobile Industry (as done by a senior government official in a conference recently) for the Dealers in the Power Sector decide what the consumers get and not the Consumers or the Producers.. The freedom the consumer enjoys in choosing the Automobile he wants, whether it is the class or brand, it comes to Power, the same consumers do not have the luxury of choosing between a Maruti or Tata or Honda, even for a given segment. He has to live with the dealer with whom he is connected or generate on his own. In the other industry Dealers have a limited role and the market is governed by consumer demands and the Suppliers capabilities. To add to the trouble, in India the "Power Dealer" (Distribution Licensee / Board) can simply report that he has lost 60% of the goods delivered to him! Can a dealer in Cement or Automobile report a similar loss and still continue to be in Business?
Given this scenario where the Producers cannot choose consumers, it is necessary for the government intervention to guarantee returns on investment or provide policy initiatives where the investor will be able to recover his investments and see guaranteed returns. When such micro management takes place, then the prices are artificial and are not typically governed by Free market dynamics. And the prices tend to be higher when the Public sector takes the major role as being in house, the Prices are not put through hard negotiation. It is therefore to the Credit of the persons at the helm of Ministry of Power (MoP) for introducing a high degree of competition and bringing in an era of Ultra Low Prices.
The Second important change that this Start will bring in is a significant improvement in Public Sector Operations in this sector. With this policy initiative the Generator is given the option of integrating two distinct elements in the value chain namely mining and Power Generation. The price now received is stripped of the high cost on both these counts. NTPC which had teamed up with BHEL for equipments has quoted a price in excess of Rs.2.00 per unit while three Private sector Companies have submitted offer less than Rs.1.40. To understand the magnitude of the impact one needs to work out the additional cash flow which NTPC tariff would have generated in the 25 year life cycle of the plant. Taking an average PLF(Plant Load Factor) of 80% with 8000 hrs of annual operation, the amount is Rs 45000 Crores for 4000MW. Some would argue that "that is the kind of inefficiency which the country is bearing today".
The equipment maker BHEL has to review the cost of his operations as he is no longer operating in a protected environment. NTPC, should sharpen its skills on mining and also negotiate finer rates of finance. I am sure there will be lots of introspection in these companies and there future actions will factor in these market dynamics.
All of this euphoria will quickly disappear if the planned evacuation arrangement (over which the Generating companies do not have any control) do not come up in time. With the MoP planning to do a similar act in the Transmission segment, part of this issue will be addressed. Focused initiatives are needed to strengthen the sub transmission segment as well.
The MoP literally talked down the Prices in this bidding round, when they indicated that their expectation of the Price for Sasan power should be in the region of Rs.1.50 to Rs. 1.60 per unit; a reserve price of sort. Any serious player would not have quoted more than that and the results bear this out. It is of course another thing that the government corporations which derive the maximum support from the MoP do not seem to concur with this view!
With such significant changes the Indian consumer can clearly look forward to an illuminated future.
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