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Home > Businesses > Power > In focus

Lack of long-term PPAs is serious concern to everybody

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As power demand is improving, Essar Power expects to tie-up the remaining capacity of Mahan plant with PPAs in the next six months, K V B Reddy, Chief Executive Officer, Essar Power, tells Business Line.

November 07, 2017 | Business Line Bookmark and Share  
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While Essar Power, which is part of Ruias-promoted Essar Group, is yet to resolve issues at its 1,200 MW power plant at Salaya in Gujarat (operations of plants that rely on imported coal in Gujarat became unviable after Tata Power and Adani Power were denied the compensatory tariff by the Supreme Court earlier this year), the company is placing its bets on the 2x600 MW Mahan Thermal Power Project in Madhya Pradesh, the second unit of which was commissioned in August. As power demand is improving, Essar Power expects to tie-up the remaining capacity of Mahan plant with PPAs in the next six months, K V B Reddy, Chief Executive Officer, Essar Power, tells BusinessLine. Excerpts: 

Essar Power announced it was finally on its way to complete the last phase of the transmission line for evacuation of power from Mahan plant. Do you expect to increase utilisation of the plant? 
 
The first two segments of the transmission line issued to us in 2010 (224 km LoopIn-Loop-
Out (LILO) of 400 kV Vindhyachal-Korba transmission line and the 105 km, 400 kV twin conductor transmission line from Gandhar to Hazira) was commissioned in 2013. Now we are very close to commissioning the second and largest phase, the 337 km, 400 kV transmission line from Mahan thermal power plant to Sipat pooling sub-station.
 
The work is going on in full swing and we will be able to commission it during the fourth quarter of this financial year. Once this is done, we will be able to export the entire power of 1,200 MW from Mahan plant to the western grid, which is connected to the national grid – this will enable power to be supplied to any part of the country. That will be a great opportunity for Mahan which is utilised partly now.
 
We are looking for more PPAs for the second unit to come up in the next six months. No long-term PPAs have been happening in the last couple of years, which is a serious concern for everybody, but short-term PPAs are happening. Merchant sales, too, are happening, and the prices are particularly favourable in the last quarter. 

How much of your entire capacity is tied up with PPAs at the moment? 

We are operating at 3,745 MW capacity, of which around 3,000 MW is secured with PPAs. We also have 1,260 MW capacity under development, which includes the 1,200 MW Tori plant in Jharkhand and a 60 MW (Phase II) plant at Paradip in Odisha. Most of this underconstruction capacity already has PPAs in place, so overall around 85 per cent of our capacity is secured. 

When are you expecting to complete these two projects, considering that in the case of the Tori plant the coal blocks were cancelled? 
 
The second unit at Paradip plant will be completed in the next 10-12 months, and it will serve the requirements of Essar Steel’s pellet-manufacturing plant in Paradip. As for Tori project, there was no linkage policy for last three years; now, since the linkage policy has been announced, we are eagerly waiting to go ahead with the project.
 
What would be the additional funding required to complete the projects?
 
Around Rs 4,000 crore would be required. Construction of Tori power plant is just halfway and to complete that project we would need additional funds, but the fundamental requirement for any financial institution to disburse funds is the availability of coal linkage. 

Demand remains a major concern for the power sector. Do you see it improving? 
 
There is a seasonal demand as well as coal-production shortage that we have been witnessing in the last 3-4 months, so demand and supply gap has increased for sure.
 
The growth rate has started improving because of various policies that are being put in place. Power consumption has gone up significantly in Gujarat and is improving in other States too. This trend will continue and, therefore, we see PPAs coming in. 

What is the status of Essar Power Gujarat Limited after the lenders decided to convert part of the debt into equity last month? When is some resolution likely, and how does the plant operate currently? 
 
We are expecting a clearer picture after the elections, but discussions are on with lenders and with procurers. Gujarat is very proactive because power demand is growing, so we expect a resolution after the elections.
 
As for the plant operations, the stress is definitely there. The operations of the plant are getting affected because coal prices have shot up and that definitely is putting pressure on us. We are struggling to operate, but we continue to do our best. 

Since Essar Power's consolidated debt stands at around Rs 20,000 crore, do you have any plans to monetise either generation or transmission assets? There were talks of selling the transmission assets to Adani Group ?
 
No such talks are there at the moment. We expect the power demand to improve shortly, maybe in one or two years, so we are not monetising power assets as of now. As for transmission system – it gives good returns on investments – so we are quite open and are looking for opportunities. 
 
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